A recent Tax Law Review argument that base reforms could clear the way for very high corporate tax rates—up to 80 percent—overstates how much design can remove the trade-offs that high rates create.
Base reforms like full expensing and border adjustment reduce incentives and channels for multinational profit shifting, improving neutrality.
A destination-based cash flow tax (DBCFT) combines border adjustment and cash-flow features to limit shifting and reduce investment distortions.
Even with an improved base, very high corporate rates still introduce economic distortions, uneven burdens across firms, and extra compliance costs.
Richard DiSalvo critiques a recent Tax Law Review piece by Reuven Avi-Yonah, which argues that after certain base fixes—including full expensing and limits on profit shifting—the usual concerns about very high corporate tax rates would no longer apply. Avi-Yonah's version goes as far as entertaining an 80 percent top rate and suggests a progressive surtax on very large firms to capture ''excessive rents.''
What the proposed base reforms would do
Full expensing: Allowing firms to deduct the full cost of investment immediately removes a tax-driven bias against new investment. That reduces the tax penalty on capital formation and makes investment decisions more consistent with pre-tax returns.
Border adjustment (destination-based element): Denying deduction for imports and exempting export income closes common profit-shifting channels where multinationals move profits to low-tax jurisdictions. That reduces the need to raise rates to offset revenue lost to base erosion.
Cash-flow features: Pairing full expensing with denial of interest deductibility moves toward cash-flow taxation. This reduces distortions between debt and equity financing and limits tax-driven leverage.
Together, these design changes make the tax base broader and less manipulable. A broader, cleaner base can allow governments to raise revenue with lower marginal distortions than a narrow base with many carve-outs. They also reduce the direct administrative and economic costs firms incur to engage in profit shifting and aggressive tax planning.
Why the 80 percent rate claim overstretches
Rates still matter. Even an improved base doesn't eliminate the economic effects of a very high marginal rate. Higher rates increase the wedge between pre-tax and after-tax returns and therefore change firms' decisions about investment, pricing, and the use of tax planning resources.
Non-neutral effects remain. Some firms or activities will be better able to adjust to high rates—through location, legal form, or use of international structures—than others. That unevenness distorts resource allocation even if the broad base reduces profit shifting on average.
Compliance and administrative costs rise. A progressive surtax targeted at very large firms or ''excess rents'' adds complexity. Defining, measuring, and policing excessive rents or monopoly-related profits would require new rules, litigation, and enforcement resources.
Behavioral and market responses are uncertain. High rates change incentives for consolidation, pricing behavior, and corporate structures in ways that are not fully predictable even with a cleaner base.
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