1. Comments
Alan D. Viard
American Enterprise Institute
March 31, 2014

2. Estimates of base erosion
Micro data crucial, firms heterogeneous
Financial constraints important
“Low” elasticity at high tax rates doesn’t rule out large profit shifting – significant profits can probably be shifted at low cost
Elasticity at high tax rates may be relevant for setting tax rates, not base-erosion rules
Distinguishing different types of base erosion

3. Choice of tax base Tax things that are less elastic
Tax close substitutes similarly
Reduce administrative costs – related to above points
Avoid taxing things that are already heavily taxed, or otherwise under-supplied

4. Combatting base erosion
Part of choosing the tax base
General strategy: Tighten tax base’s link to real activity
Real activity likely to be less elastic, but may already be taxed heavily, under-supplied
Piecemeal rules may result in disparate treatment of close substitutes
Some forms of real activity (sales?) may be less elastic than others

5. Source and residence
Linking tax to corporate residence combats erosion of source base – linking tax to source combats erosion of residence base
Combatting erosion of residence base
Use past residence (anti-inversion rules)
Tighten corporate residence’s link to real activity
At least in long run, residence likely to be more elastic than source

6. The big picture
Unilateral U.S. action against base erosion may not promote U.S. national wellbeing, but international cooperation likely to do so
Shareholder residence likely to be best tax base – domestic and international advantages