Revenues
Tax All Foreign Income of U.S. Corporations at the Full Statutory Corporate Rate
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
Billions of dollars | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2025– | 2025– |
Decrease (-) in the deficit | -21.4 | -36.5 | -31.3 | -33.3 | -34.6 | -35.8 | -35.0 | -34.6 | -37.9 | -39.7 | -157.1 | -340.0 |
Data source: Staff of the Joint Committee on Taxation.
This option would take effect in January 2025.
The United States currently taxes the foreign income earned by a domestic corporation using a hybrid system that incorporates elements of territorial and worldwide systems. (Under a pure territorial system, the corporation's home country does not tax foreign income at all. Under a pure worldwide system, any foreign income is taxed immediately by the corporation's home country.) Some categories of foreign income earned by U.S. corporations are taxed immediately by the United States. Most of those categories, including certain types of passive or highly mobile income (sometimes referred to as Subpart F income), are taxed at the full statutory corporate rate. However, global intangible low-tax income (GILTI) is taxed at a reduced rate. GILTI is the amount of foreign income that exceeds 10 percent of foreign tangible assets. In calculating their U.S. tax liability, corporations are allowed to claim credits for the foreign taxes paid on U.S. taxable income from foreign sources. Foreign tax credits are limited so that they do not exceed the U.S. tax liability on that income. For GILTI, the credits are also limited to 80 percent of foreign taxes paid. The remaining types of foreign income earned by U.S. corporations are exempt from U.S. taxation.
This option would move the United States from its hybrid system to a worldwide system for taxing foreign income. All types of foreign income earned by U.S. corporations would be taxed immediately at the full statutory corporate rate: The option would remove the tangible assets exemption in the calculation of GILTI, tax GILTI at the full rate instead of a reduced rate, and eliminate the 80 percent foreign tax credit limit for GILTI. This option would not change the taxation of categories of foreign income that the United States currently taxes at the full statutory corporate rate.