Making Sense of Profit Shifting: Kimberly Clausing

May 12, 2015

Kimberly Clausing is the Thormund A. Miller and Walter Mintz Professor of Economics at Reed College. A leading researcher on international taxation and tax avoidance, Professor Clausing has throughout her scholarly career consistently explored areas related to corporate taxation, multinational firms’ tax avoidance, and the profit shifting phenomenon. In particular, her estimates of the revenue effects of profit shifting have been highlighted in both academia and in the popular press.

Professor Clausing earned her B.A. from Carleton College in 1991 and her Ph.D. from Harvard University in 1996. During 1994 to 1995, she served at the Council of Economic Advisers as a staff economist, specializing in international economic policy.

In this interview, Professor Clausing dissects the nature, drivers, and direction of profit shifting and highlights a plausible range of the revenue effects of profit shifting. Additionally, Professor Clausing analyzes possible policy actions to address profit shifting as well as offers her thoughts on the future of the corporate tax base. This interview is part of our 2015 Tax Foundation Forum series and has been edited for length and clarity.

Tax Foundation: What is known about profit shifting?

Kimberly Clausing: There has been quite a bit of research in this area within academic circles for decades now. In fact, I did my first work in this area when I was a graduate student back in the mid-1990s and even at the time there had already been a substantial number of studies. And now it’s 20 years later and there is even more work.

In this large academic literature, there is a consistent finding that profitability or profit rates are indeed statistically signficantly sensitive to tax incentives across countries. So low-tax countries consistently have firms within them that are more profitable, whereas in high-tax countries firms are less profitable.

And so the empirical difficulty becomes separating out how much of that is the inherent advantage associated with some of these locations. For instance, you could argue that in Ireland the people are very well-educated, and there is luck in the air due to the Irish, so you may expect that not all of Irish firms’ higher profitability is due to tax differences. Some of it might be due to the peculiarities of being in Ireland. But nonetheless, as carefully as one can look, there does still appear to be a large and always statistically significant effect of taxes on reported profitability.

If one is looking for particular numbers that are suggestive of this, we can look, for instance, at U.S. multinational firms. At present, they have $2 trillion in permanently reinvested earnings in low-tax countries and $1 trillion of it is in cash.

So that’s showing you that a substantial amount of money is accumulating in these low-tax jurisdictions, and some of it isn’t even productively invested. So, if you’re just looking for one number that’s indicative of that trend, that’s one number. But there are really dozens of studies that confirm the importance of tax to where profit is located.

TF: If you would juxtapose the known with the unknown, what in your opinion is still within the unknown with respect to profit shifting?

Clausing: As researchers, we are always able to point to the direction of these incentives and can get ballpark magnitudes, but getting precise magnitudes is more difficult. Forecasting the effects of policy changes on this picture is also difficult.

So while it’s easy to say that the current system generates the following rough effects, being precise about exactly the dollars shifted or what would happen if we undertake policies A, B, C or D in response is harder to pinpoint with precision. The forecasting side of this is the most difficult part.

What are the unique factors or drivers underlying the profit shifting phenomenon?

There are several issues at work here. First, governance is occurring in a different level of aggregation than is the economic activity. If firms span international borders, but governments are setting national tax rates, of course, governments will be heterogeneous in what policies they choose. Some governments will choose low tax rates and some choose high tax rates. These tax rate differences provide firms with tax-based incentives to earn more income in low-tax locations and less income in high-tax locations.

In addition to that very basic feature, there are a lot of regulatory and legal issues that exacerbate this problem. For instance, if you look at the U.S. case, we have various regulatory provisions that actually make it easy to create income that disappears for tax purposes. It’s not taxed in any jurisdiction, because you can ”check-the-box” to make entities become disregarded for tax purposes. This allows you to create income that isn’t taxable in the U.S. but also isn’t taxable even in the low-tax country. It might actually be taxed nowhere.

This planning feature goes beyond the simple tax rate differences because it’s not just because the tax rate in one country is 20 percent and the tax rate in another country is 10 percent, so more income shows up in the 10 percent location. This planning is not just arbitraging those differences, but instead creating income that is, in fact, taxed nowhere.

In addition, there are two other things that I might point to. One is the rise of intangibles. If we think back to the economy of a century ago, the major sources of value were very easy to identify. You could look at labor, you could look at capital. Capital were things like buildings and machinery that you could touch and see.

The source of economic value today is much more likely to be idea-based. The tech sector, the entertainment sector, the pharmaceutical sector, and biotech—if you take all of these sectors and ask what is creating value, often it’s an idea rather than a greasy machine. Machinery is much easier to observe the location of than an idea.

When an idea creates a lot of economic value and you’re not sure where the idea is, it creates conundrums for tax officials who are trying to figure out the source of value. This is part of what made source determination difficult. We’d like to know where the value of Google, Apple, or Pfizer lies. But it’s not entirely clear when their operations span national boundaries and when their value is so often embedded in these intangibles.

As the final factor, in addition to tax rate differences, stateless income planning, and intangibles, I would also say that globalization itself turbo charges all of this.

There are wonderful benefits associated with global activity, and I’m definitely a cheerleader for globalization, but one of the things that it does make more difficult is figuring out how to best fund government and generate efficient sources of revenue when the activity that you’re attempting to tax is highly mobile and increasingly so.

I think all of those factors are part of this phenomenon.

How does profit shifting alter the behavior of firms?

I think in several ways. One distortion is associated with the amount of resources that firms devote to tax planning. Like I mentioned earlier, we think of sources of economic value as being things like capital investment and new ideas, but many of these multinational firms also treat their tax division as a profit center. The very intellectual abilities that would normally go into generating innovation or figuring out the best way to organize the production process are now at times diverted to the best way to report profit and the best way to arrange the accounting.

There is a great amount of talent, expertise, and initiative that is being devoted to this tax minimization game. One of the disappointments associated with having such a complex and arcane tax system, which we certainly have here in the U.S, is that a lot of talented individuals are used to this end rather than to a more productive use: Curing cancer or coming up with an new widget. Instead, these people are figuring out ways of creating chains of ownership such that the profits are taxed nowhere. I think that this is a real distortion that we should think about: the waste of effort devoted to this tax minimization game when everything is so complicated.

In addition, there are other elements to the behavior of firms that come into play here. To some extent, we might see firms moving actual jobs and factories to low-tax locations. If you look at the literature, there is evidence of this sort of real mobility, where you get more activity, actual jobs in factories in lower-tax locations, than you would otherwise predict because of the tax rate.

Now, I think that the real responsiveness to taxation pales in comparison to the financial responsiveness. As much as the firm might be inclined to do a little more production in a low-tax country, what they would really like to do is base the production in the places where it’s most productive and just move the income.

To some extent, one of the silver linings of tax avoidance is that it might actually lessen the real responses of economic activity to taxation. In particular, if a company can move the income without moving the jobs, then they can keep the jobs in the high-tax countries and just move the income to the low-tax countries. You get a tension in the tax system between these different types of responsiveness.

Most of the literature suggests that the financial responsiveness is much greater than the real responsiveness. Nonetheless, the real responsiveness of actual movement of jobs and investment is still there. We do still see distortions in the location of economic activity for tax reasons. It’s just less distorted than the finances are.

All of those are elements of the behaviorial response.

If you would compare the transfer pricing channel of profit shifting to the debt channel, which one is more important and are there other significant channels through which firms shift profits?

Some of my earliest work is on the pricing of intra-firm transactions. You could imagine an input good going between two affiliates and you might distort the prices of that input in order to shift the income. There are certainly some large tax effects there.

I think that transfer pricing channel is less important now than the other channels, partly because of these regulatory provisions I spoke of earlier. It’s easier than it used to be to shift income without worrying about changing the price of an intermediate product and instead moving the intangible income, the ideas, or the royalties to different locations. These things are easier than it used to be because of both the rise of the intangibles and the regulatory provisions that allow firms to be clever in shifting profit.

I would still expect tax effects in trade prices. You still see them empirically when you look at trade prices, such as the classic types that I studied earlier. But the larger effects now are from shifting intangible assets, stateless income planning, and as you mentioned, interest stripping is another important channel. Interest stripping is changing the structure of affiliate finance so that there are more debt deductions in high-tax countries and more interest payments in low-tax countries. I would guess that the largest profit shifting channel is stateless income creation.

Does profit shifting matter?

Yes, I think it matters in a couple of ways. As I already noted, one silver lining of tax avoidance is that it’s possible that it might actually lower the real responses to taxation. That’s something we shouldn’t forget, but profit shifting still has harmful effects on the integrity of the tax system.

Think about what a tax system is trying to do. It’s trying to raise revenue for the government, in an efficient and transparent way. It’s trying to do it in a way that shares the burden across different households and constituents.

As we all know, firms don’t pay taxes; people do. So if a corporation pays a tax, that is not really escaping the fact that there are some people within the corporation that are paying the tax. One question we have to ask is, ”If we lower the tax burden on this particular set of highly-mobile and multinational firms, who are we really lowering the tax burden on and how is that affecting the revenue of governments?” There are both revenue effects and distributional effects that are important here.

In terms of the distribution, other work that I’ve done on corporate tax incidence suggests that some of this is a tax on super-normal profits or rents, as we might call it. So if you think about some of the firms that would be most likely to earn large profits in the global economy, many of those profits aren’t entirely like the perfectly competitive type but are the types that accrue to people with perhaps a clever idea, monopoly power, or some combination thereof that makes profits higher than we would normally expect.

The incidence of that part of the tax is probably falling on the profit holders themselves: on the shareholders and on these excess profits. The rest of the tax is being shared by capital and labor, but no matter how you look at the incidence of the corporate tax, it is one of the more progressive taxes in our tax system. When you lower revenue there, you are altering the distribution of the tax system in an important way, and we shouldn’t ignore that.

A second feature is the revenue effects. If you don’t collect revenue from one tax, then you have three choices: You either have to collect the revenue from some other tax, you have to cut spending, or you have to increase the deficit. Those are the only mathematical options. So each of those have consequences.

If you don’t tax this particular source of income and you tax other sources of incomes, you are creating distortions there too. The labor income tax falls entirely on workers. So if you raise that tax, you’re increasing the tax burden on American households. Those are households that haven’t seen big increases in wages over the past few decades, so increasing their tax burden isn’t a trivial thing to do.

If you cut spending, there are important priorities for infrastructure, healthcare, social security and defense that you’re going to have to short or at least think about strategically prioritizing.

If you raise the deficit, that has real consequences on future generations, on interest burdens and future budgets, and on net indebtedness to foreigners.

All of those issues are not cost-free. We need to think carefully about what sort of loopholes we’re opening in the tax system given that the loss of revenue will either show up in a different tax, in cuts in spending, or in deficits. All of those are important consequences. So I do think it matters.

Has profit shifting increased over time?

I think it has for the reasons that are driving the phenomenon. Every one of those reasons is increasing over time. Let’s discuss each of them: the tax rate difference between the U.S. and foreign countries has increased over time, in part because our statutory tax rate has stayed high, while other countries have lowered their rates.

The loopholes in regulatory provisions have increased over time. We’ve seen the ”check-the-box” rules starting in about 1998, and that increased tax planning efforts. As firms have learned from each other about these avoidance techniques, there’s been a sense in the tax planning community that this behavior is larger than it used to be, and you can see that in this accumulation of foreign cash.

If you look at the role of intangibles in economic value, that is also increasing. GDP is ”lighter” than it used to be. By “lighter” I’m just talking about it in sheer pounds or kilograms. Machinery is not the source of the GDP anymore. It’s more and more ideas-driven. The more important intangibles are in value, the greater this problem is.

Finally, globalization is also increasing. There was a setback to globalization in the wake of the Great Recession, of course. You saw a de-globalization of both finance and trade in 2009 and 2010. Since then, we’re back to where we were before the Great Recession, and globalization is marching on. This is also a contributing factor.

So everything that’s causing profit shifting is also increasing over time. I fully anticipate that, therefore, the problem is increasing over time. That’s what the data show as well.

Studies using European data* suggest that profit shifting is decreasing over time, and studies using U.S. data, including work by yourself, Harry Grubert, and Klassen and Laplante, suggest that profit shiting is increasing over time. Why is there such a difference between studies using European and U.S. data?

I think there’s actually a pretty simple explanation that might not be that exciting for policy makers. The data used in the European studies are very different from the data that are used in the U.S. studies. There’s this wonderful database that people love because it’s very rich in detail. It’s called Orbis and sometimes referred to as the Amadeus database.

Basically it collects a huge amount of financial reporting data, mostly on European multinationals. The problem with this financial reporting data is threefold. First, it is financial reporting data, not tax data. Second, there isn’t country representation for a lot of countries, including some of the most important tax havens, so you can’t see all of the affiliate activity in the data. Third, the data aren’t as disaggregated as they would need to be to fully pull out all of these tax incentives.

Whereas the Grubert study, for instance, uses actual tax data. The studies that I do often use Bureau of Economic Analysis data, which is survey data based on firms reporting their taxable profits in particular countries. You get much closer to the true tax incentives when you use tax data or survey data than when you use financial reporting data, because financial reporting data are incentivized by financial reporting incentives and they’re not as disaggregated.

Thus, I’m a bit skeptical of some of these European surveys, partly because I don’t think the data are fine-tuned enough to the problem at hand.

I think all we need to do is point to this accumulation of foreign cash. How is it that we get, after the tax holiday in 2005, where firms could repatriate foreign profits at a reduced tax rate, a trillion dollars in cash abroad now, and $2 trillion in permanently reinvested earnings? It just doesn’t seem like you can reconcile those facts with a decreased income shifting incentive, like those European studies show. It’s because they’re using data that aren’t really well-suited to their purpose. It’s really the data that’s driving those differences.

* See, for example, Dhammika Dharmapala and Nadine Riedel’s ”Earnings Shocks and Tax-Motivated Income-Shifting: Evidence from European Multinationals” and Theresa Lohse and Nadine Riedel’s ”Do Transfer Pricing Laws Limit International Income Shifting? Evidence from European Multinationals.”

You have conducted estimates of profit shifting out of the U.S., and your most recent estimate was published in 2011 in Tax Notes. What’s your current notion of a best estimate or range of profit shifting out of the U.S.?

I’ll point out a couple of things about that 2011 estimate. The estimate is published in that year, but the most recent data at that time was from 2008. At the time, I suggested a range of income shifted out of the U.S., and the amount of income shifted out was a pretty broad range from about $160 to $250 billion. Of course, the tax consequence is just the tax rate times that, so a smaller number: about $60 to $90 billion in revenue losses.

One thing to note about those numbers is that they don’t imply that any particular legislation would get that revenue back. That’s an estimate of the loss associated with every type of income shifting, and most legislation is targeted at reducing one or another type, not at shutting the entire project down. I wouldn’t view it as easy money to just scoop up, but rather a rough sense of how much of this activity is occurring.

My guess would be that, since 2008, that number would have changed for the reasons I spoke of earlier. We’ve seen continued factors that are increasing income shifting in theory, and I think in some of the data that are best suited to address this. I would expect, if anything, that number should be higher now.

I would also point to the imprecision of the number. We don’t have an exact number, but we know it’s very large. You could tell it’s very large by those trillions of dollars of cash abroad. You can’t get that without a fair amount of income shifting.

Kimberly Clausing published an earlier estimate of U.S. revenue losses due to profit shifting in 2009, in the National Tax Journal. The 2011 Tax Notes piece is an update of the 2009 study.

So the cash abroad is the key indicator of profit shifting?

Well, I think that’s one key indicator. If you want a reality check, one way to do it is to say, “How did multinationals accumulate a trillion dollars in cash abroad in 10 years if there isn’t a certain amount of income shifting?” That’s just U.S. multinational firms. It doesn’t seem like this problem could be tiny with those kinds of magnitudes involved.

I think that my estimate is in the ballpark of something that would create about what we see in terms of those earnings abroad. I’m pretty comfortable with it, but I would point out that it’s a range for a particular set of years. All we’re really getting is a rough guess, a back-of-the-envelope calculation, of plausible magnitudes rather than a precise scientific answer like you might get in the chemistry lab or someplace where you could just sprinkle tax rates on Petri dishes. We don’t have that luxury in economics because there’s always a lot of factors changing at the same time, so we can only guess rough magnitudes rather than produce precise answers.

What is missing for a better understanding of profit shifting?

I think better data would go a long way. I’d love to see other countries adopt surveys that the U.S. Bureau of Economics Analysis does of multinational firms, because that could really fill gaps in the understanding. I would love to see more detailed financial reporting, to help address the difficulties with the European studies. Because if countries are reporting profit in different regions, it’s hard to tell the tax rate of the region. That region may agglomerate some countries with a really high tax rate to some countries with a really low tax rate.

I think we could get better accounting data and better survey data. It would also be terrific if tax authorities could release aggregated versions of some of their tax return data on a more regular basis so that researchers could use actual tax data to look at this question.

As it is, if you’ve got a co-author in the Treasury Department, you can get a pretty precise sense of the U.S. tax data. Absent access to the detailed tax data, a lot of researchers don’t have as much ability to take a squint at it. There are also ways to get these data without violating firm confidentiality, which is something I would take seriously.

Aggregating the data by country would be helpful. That number is going to aggregate across a lot of different firms, but that would be a useful fact to know that could easily be released. So more sharing of tax information, more survey data, and more disaggregated financial data would be helpful.

I think our models are really pretty clear. It’s not rocket science to establish the likely causation direction, ”Oh, if the tax rate is higher in country x than country y, then what do we expect that to do?” So that’s a pretty simple insight. There are some bells and whistles that theorists have put on that insight and those are important things to acknowledge, but the data are behind the theory here.

Are U.S. multinationals homogeneous with respect to profit shifting? Or is there a degree of heterogeneity?

I think there is some heterogeneity, and that’s important. So I think we’d get an even better idea if we could take industry cuts, for instance. I think the industries where intangible assets are important behave differently than the industries that are more bricks and mortar, old-fashioned industries.

Some of that distinction is eroding a little bit because of the innovations in tax planning that have enabled even the less intangible-intensive firms to be more successful at this game. Ed Kleinbard has a very interesting paper on Starbucks that discusses this. You don’t really think of Starbucks as being a super intangible-intensive multinational, but they’re still able to use some of the same avoidance techniques as intangible-intensive firms.

Can multilateral cooperation work, and is it a solution to profit shifting?

I think it’s a useful opportunity for countries to set new norms and expectations and to talk about goals for the tax system and techniques that countries could use to address particular problems that have cropped up. So it’s a useful and helpful effort.

I think there are some limits to it that are worth noticing. One is, even if the OECD comes up with the perfect plan, that’s just their plan. It does not obligate the member countries to adopt any such plan. Countries will tend to do what’s in their best interest irrespective of what the OECD is recommending.

Still, at times, the OECD can be useful because they can say “You have problem x, here’s a possible solution,” and then countries can borrow from that expertise. Particularly for small countries that don’t have sophisticated tax departments in their finance ministries it can be useful to have cookie-cutter approaches that might work for them.

I think the OECD BEPS project is a valiant effort, but I wouldn’t expect widespread adoption immediately. I also think that one important thing to keep in mind is that the tax planners, the lawyers, accountants, and folks who are working on how to best solve this tax minimization problem, they are often one step, if not two, ahead of the folks who are trying to reduce the number of loopholes and stem this problem. I do think it’s a useful step, but I think we might be cautious about overselling it as a complete solution to this issue.

So multilateral cooperation is not a panacea?

Right, exactly.

How about for the U.S.? What would be prudent steps going forward for the U.S. to address profit shifting?

I like some of the proposals that are focused on stemming this or that loophole. I do think there are some really some low-hanging fruit. There are things we could do right away—for instance, repeal check-the-box—that would shut down some of the profit shifting. There are also something like 10 different proposals at least that have been offered on earnings stripping or thin capitalization rules over the past decade or so. None of those have been adopted, and all of those might be somewhat helpful.

There have been proposals for minimum taxes, both from Republicans and Democrats. One of the Camp options included features of a minimum tax. Democrats have also suggested minimum tax type features, including both the Obama administration and the Senate Finance Committee.

There’s some consensus around some of those types of things. I think that minimum taxes, earnings stripping rules, eliminating check-the-box, and beefed up CFC rules can all be helpful and are steps forward to improving the situation.

I would be a little skeptical of putting too much more pressure on transfer pricing regulations in terms of having firms document further what they’re doing, because I think this is a hopeless exercise in determining source. Firms are already spending an incredible amount of resources on transfer pricing documentation. It’s very complex. It’s very burdensome. It’s one of their worst accounting problems.

The more we could replace this hodge-podge of source determinations with something like a minimum tax, the more it’s simpler. Regardless of how much you’re shifting here or there, the lowest the tax is going to be is x. You just set that minimum and then the source determinations have less pressure on them, because it’s not as if you can get the income to Bermuda, and then you’re down to zero percent tax.

I think a minimum tax is a more hopeful approach than trying to tighten source regulations because the regulations already just really complex and burdensome. That’s just talking about the U.S. If you think about a developing country, God help them if they’re trying to implement complex transfer pricing regulations. They would be better off directing their capacity in other ways. Trying to match the big accounting firms and the lawyers involved with determining source is kind of a hopeless task. So I think the simpler, the better.

How about a territorial or a dividend exemption system? What could that do for the U.S.?

I just wrote a paper on this question actually because I got a little tired of the way that everybody is labeling the U.S. as ”worldwide” and foreign countries as ”territorial.” This paper makes the point that the labels themselves are, at this point, entirely misleading.

If we really want to know how much foreign income a country is taxing, you have to look at: What are their base protection laws? How tight are their CFC rules? How much income is actually being taxed? If you look at the current U.S. system, for instance, because of our so-called worldwide system, we can use foreign tax credits to offset much of the tax that would be due on royalty income.

It’s possible that if we move to a so-called exemption system, the tax burden on foreign income could actually go up. That’s what many researchers show. I document in this paper that, in a way, our tax burden on foreign income is already lighter than the tax burden of many reportedly territorial countries.

Calling something territorial or worldwide is misleading without looking at all countries as if they were on a spectrum. There are features of our system that put us on the territorial side of many reportedly territorial countries, since we have a lighter taxation of many types of foreign income.

In terms of thinking about where we are on the spectrum, I think one could make an argument for an exemption system. But I’m not sure that it would entail a lighter burden on foreign income than what we’re doing now because the foreign tax credits couldn’t be used anymore to shelter royalty income and the tax burden of foreign income might actually go up. So that’s also something that has been put forth as a panacea, but isn’t really a panacea.

One of the things it does address is all this cash abroad, because there’s this big disincentive to repatriate that cash. But there are other ways that you can deal with that aside from just moving to an exemption system. If we did move to an exemption system, I would suggest a transition tax on that income abroad, to avoid just giving out a tax windfall. In theory, that income should have some residual U.S. tax burden. Some of the proposals actually out there do have transition taxes of sorts in them.

How about a tax rate reduction to reduce profit shifting? How do you envision that as a step forward?

A reduction in the corporate tax rate that was coupled with some of the provisions that we’ve already been talking about would be a step in the right direction. Having a tax rate of, say, high 20s and actually collecting it is a lot better than having a tax rate of 35 percent and giving up on collecting it.

One way to build consensus for reform is to couple these things together because then the domestic firms actually get a tax break. You’ve got some people who are going to be happy about the legislation. You can get some buy-in that way. In addition, the system is more transparent.

Instead of announcing that we have a 35 percent tax rate but then watching as some multinational firms get effective rates far lower, and even into the single digits, we should announce a rate and try to collect it. I think that would be a step in the right direction to improving the tax system.

What major developments do you expect in the next 1-2 years?

From a global perspective, the OECD BEPS project will probably respond to a lot of concerns that we’ve seen throughout Europe in particular about this income shifting problem. I would expect more action on policy changes in the European context, mostly for political reasons. I think there’s more political will there, and their existing tax system and existing political system both are starting from a point where it’s easier to make changes than we are right now.

In the U.S., the degree of consensus can be understated, because to some extent, the fact that the Camp proposal and the Obama proposal have similar elements one should take as encouraging.

It seems that people agree that a lower tax rate should be combined with a more serious attempt to collect the tax is due. Some combination along those lines is in order. Ironing out the particulars is quite difficult politically, but in terms of the economics, there is a fair amount of consensus.

In terms of research, I would expect the continued types of projects that we’ve seen so far. I think there’s a set of devoted and hardworking people that are working on these issues. I would expect them to continue to toil away looking at these projects and trying to clarify our understanding.

I do hope that one outcome of the OECD BEPS process might be some recommendations for better data collection. To the extent that researchers can have better data to work with, I don’t think that’s going to happen in one to twp years, but in 5 to 10 years, we might see some steps forward based on better data. I think that could be very helpful.

What is the future of the corporate tax base?

I think that governments are going to have to be more clever about how they’re collecting this tax. But I wouldn’t see it wither away. Some people argue that maybe we won’t have it at all. But the problem with not having it at all is much bigger than people think, since the corporate tax acts as the backstop to the individual tax system, and there are some important spillover effects between those two tax bases. You don’t want the corporate form itself to become a tax shelter, for instance.

So I don’t think we can get rid of it. I do think one could make it better and more coherent, and that’s long overdue. I hope that people can pull together to try to come up with a better and more coherent version of it.

What are some of your own favorite papers or resources related to profit shifting?

I would recommend Ed Kleinbard’s stateless income pieces. One called, “Stateless Income” and one called, “Lessons from Stateless Income.” Those are both very helpful.

There’s a very nice overview of corporate tax elasticities and the academic research in this area by Ruud de Mooij. His analyses of the literature as a whole are much more careful and systematic than any other researchers I’ve seen. He’s actually got three different big survey papers in this area, and they’re all good: in 2003, 2005, and 2008. I hope that he will do another one pretty soon, because his work here is excellent.

In terms of papers that I’ve written that I think a researcher might want to look at is the “Multinational Firm Tax Avoidance and Tax Policy” paper in the National Tax Journal that was then updated in that Tax Notes piece in 2011. My most recent paper, which I titled “Beyond Territorial and Worldwide Systems of International Taxation,” is useful in talking about labels. I’ve got a paper called “The Future of the Corporate Tax” that also gets to some of these issues. Finally, I think corporate tax incidence is important, so I’d recommend my paper on ”Who Pays the Corporate Tax in a Global Economy?” in the National Tax Journal.

There’s a lot of good work being done throughout the fields of accounting, law, and economics. This is one area where economists fruitfully work with both legal and accounting scholars and have learned from each other. Partly due to the complexity of the law in this area, you can’t really attempt to get good answers to questions without having all those types of people involved.

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