DESIGNING A U.S. EXEMPTION SYSTEM FOR FOREIGN INCOME WHEN THE TREASURY IS EMPTY

The US government faces a well-documented long-term revenue shortage that is unlikely to be cured by government expenditure reductions. Thus, it is curious that there is currently considerable pressure for the US to adopt some type of territorial or exemption system under which most foreign-source active business income earned by US resident corporations would become substantially free of US income tax. Although the authors are not fans of territoriality, they recognize that a significant reform of the US international tax system is necessary. Accordingly, it is important for academics and policymakers to thoughtfully discuss the structure of such a system. They hope that this article will contribute to that conversation. Their fundamental point is that because of the US fiscal situation, it is particularly important that a US territorial system not forgo more revenue than is necessary to achieve the system's appropriate ends.