Fair Tax Would Close Transfer Pricing Loopholes

by Kurt Schulzke on May 18, 2010

Jesse Drucker, writing this week in Bloomberg Businessweek, tells the fascinating story of “Forest Laboratories’ Globe-Trotting Profits” and bemoans the fact that billions in U.S. income tax are legitimately avoided by corporations like Forest through international transfer pricing strategies. Drucker’s last paragraph is the best:

“If multinationals cannot be prevented from shifting profits to low-tax jurisdictions, then it becomes impossible to maintain the domestic corporate tax base,” says Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan Law School. If that bleeding can’t be stanched, he says, “we might as well abandon the income tax.”

So true and so timely.  But what would replace the income tax?  Why not the Fair Tax?  The Fair Tax would entirely close transfer-pricing loopholes while at the same time allowing corporations and their customers to save the billions they now squander on designing elaborate tax-minimization strategies.