Option 67:

Adopt a Clean 15 Percent Net Controlled Foreign Corporation Tested Income Rate with Full Foreign Tax Credit Crediting

Topline Estimates

Conventional Primary Deficit Change (10‑Yr)
-$104.5B
Dynamic Primary Deficit Change (10‑Yr)
-$104.5B
Dynamic Total Deficit Change (10‑Yr)
-$126.6B

Source: Tax Foundation General Equilibrium Model.

Net CFC-tested income (NCTI) is the system for taxing international earnings of US companies. It is a hybrid between a territorial and worldwide system, requiring a US shareholder of one or more controlled foreign corporations (CFCs) to partially include in current income a pro rata share of each CFC’s tested income, net of tested losses, regardless of whether the earnings are distributed.

This option makes two changes to NCTI to bring it more in line with typical international practices: setting the NCTI inclusion to 5/7 and allowing full foreign tax crediting. In combination with a 21 percent domestic rate, those settings produce a clean 15 percent effective US rate on NCTI with no foreign tax credit haircut, rather than the 12.6 percent to 14 percent effective range seen under current law, which varies based on foreign tax rate.

NCTI has no direct effects on the US economy, but likely some indirect economic effects, plus some longer-run elasticities of taxable income worthy of consideration. Operations by a US company in a foreign jurisdiction are often complementary to operations in the US. An increased tax burden on international investment may result in smaller operations abroad, and less investment in the US to support them. An increased NCTI rate would also make US companies less competitive in international mergers and acquisitions, ultimately eroding some of the NCTI base. As with other international options, the economic implications are complex and not captured in our model.

On a conventional basis, this option would decrease the primary deficit by $104.5 billion over the budget window. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 175.1 percent by 2056.

Modeled Results

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About the Authors

Erica York Tax Foundation
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Erica York

Vice President of Federal Tax Policy

Erica York is Vice President of Federal Tax Policy with Tax Foundation’s Center for Federal Tax Policy. Her analysis has been featured in The Wall Street Journal, The Washington Post, Politico, and other national and international media outlets.

Garrett Watson Tax Foundation
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Garrett Watson

Director of Policy Analysis

Garrett Watson is Director of Policy Analysis at the Tax Foundation, where he conducts research on federal and state tax policy. His work has been featured in The Washington Post, The Atlantic, Politico, the Associated Press and other major outlets.

Huaqun Li Tax Foundation
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Huaqun Li

Senior Economist, Director of Modeling Projects

Dr. Huaqun Li is Senior Economist, Director of Modeling Projects at the Tax Foundation. She focuses on developing and maintaining the Foundation’s Taxes and Growth Model, which models the budgetary and economic effects of changes to federal tax policy.

William McBride or Will McBride Tax Foundation
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William McBride

Chief Economist & Stephen J. Entin Fellow in Economics

Dr. William McBride is the Chief Economist & Stephen J. Entin Fellow in Economics at the Tax Foundation, where he oversees major research projects primarily related to reforming the federal tax code, advancing sound tax policy, and improving the federal government’s fiscal outlook.

Alex Durante Tax Foundation
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Alex Durante

Senior Economist

Alex Durante is a Senior Economist at the Tax Foundation, working on federal tax policy and model development. Alex worked as a research assistant at the Federal Reserve Board and served as a staff economist on the Council of Economic Advisers.

Alex Muresianu Tax Foundation
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Alex Muresianu

Senior Policy Analyst

Alex Muresianu is a Senior Policy Analyst at the Tax Foundation, focused on federal tax policy. Previously working on the federal team as an intern in the summer of 2018 and as a research assistant in summer 2020. He attended Tufts University, graduating with a degree in economics and minors in finance and political science.

Peter Van Ness Tax Foundation

Peter Van Ness

Research Software Developer

Peter Van Ness is a Research Software Developer at the Tax Foundation working on federal tax policy and model development. Peter previously worked as a research assistant at another think tank and as a data analyst at a consulting firm.

Aleksei Shilov Tax Foundation Research Software Developer

Aleksei Shilov

Research Software Developer

Aleksei Shilov is a Research Software developer at the Tax Foundation working on economic model development and federal tax policy. Aleksei joined the Tax Foundation as an intern in January 2025. He holds a B.S. in computer science and a minor in economics from Northeastern University and is currently based in Boston, MA.

Daniel Bunn Tax Foundation President & CEO
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Daniel Bunn

President and CEO

Daniel Bunn is President and CEO of the Tax Foundation. Daniel has been with the organization since 2018 and, prior to becoming President, successfully built its Center for Global Tax Policy, expanding the Tax Foundation’s reach and impact around the world. Prior to joining the Tax Foundation, Daniel worked in the United States Senate at the Joint Economic Committee.