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Option 62:

Restore the 10 Percent Qualified Business Asset Investment Carveout for Net Controlled Foreign Corporation Tested Income and Foreign-Derived Deduction Eligible Income

Topline Estimates

Conventional Primary Deficit Change (10‑Yr)
-$28.6B
Dynamic Primary Deficit Change (10‑Yr)
-$28.6B
Dynamic Total Deficit Change (10‑Yr)
-$34.4B

Source: Tax Foundation General Equilibrium Model.

Prior to the One Big Beautiful Bill Act (OBBBA), both the global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) regimes included a qualified business asset investment (QBAI) carveout. QBAI helped divide American corporations’ international earnings into tangible income (coming from capital and labor) and intangible income (coming from trademarks, ideas, or intellectual property). It did so by deducting 10 percent of the value of tangible assets (such as buildings or machinery) from the GILTI and FDII tax bases, leaving a proxy for intangible income subject to the preferential rates.

The OBBBA removed QBAI from both calculations. Removing QBAI increased the tax burden for American companies with tangible operations abroad and reduced it for American companies that export and have tangible operations in the US. To reflect these changes, the new law renamed GILTI to “net CFC-tested income” (NCTI) and FDII to “foreign-derived deduction eligible income” (FDDEI).

This option restores the 10 percent QBAI carveout in both regimes. GILTI (NCTI) and FDII (FDDEI) work in opposite directions, so QBAI restoration has different effects on each. For GILTI, restoration is a tax cut: a substance carveout designed to focus the regime on intangible income held abroad. For FDII, restoration is a tax hike: it focuses the preferential rate on intangible income only, making FDII more like a patent box and less like an export subsidy.

Because the FDII tax hike has the greater direct domestic impact, restoring QBAI would on net reduce the deficit. 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 $28.6 billion over the budget window. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower, reaching 175.7 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.