Eliminate the Base Erosion and Anti-Abuse Tax

The base erosion and anti-abuse tax (BEAT) is a corporate alternative minimum tax that disallows certain deductible payments to related foreign parties. It functions in part as a valid base erosion measure, but also as a corporate income tax and as a tariff-like barrier on the international activities for which deductions are denied. The mix of these elements is genuinely unknown, but at least some are distortionary and damaging to growth. Even BEAT’s overall revenue effect is uncertain because behavior and reported information under one minimum tax regime may not remain the same under another, making counterfactuals challenging to establish. Though BEAT raises little revenue directly, it likely raises considerable revenue indirectly through companies paying more under the ordinary corporate income tax system.

This option repeals BEAT. This would make the US tax base more vulnerable to certain kinds of profit shifting but also remove the tariff-like barrier on legitimate international activity, boosting productivity and potentially even investment. As with other international options, the economic implications are complex and not captured in our model.

On a conventional basis, this option would increase the primary deficit by $257.2 billion over the budget window. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be higher than baseline, reaching 177.9 percent by 2056.