Discussion of The Impact of U.S. Tax Law Revision on Multinational Corporations' Capital Location and Income-Shifting Decisions and Geographic Income Shifting by Multinational Corporations in Response to Tax Rate Changes

Abstract

The principal research question in these papers involves transfer pricing: Did multinational corporations shift income into the United States following the Tax Reform Act of 1986 (TRA 86) to minimize worldwide taxes? To address this question, Harris compares the tax expense and income of multinationals domiciled in the United States (U.S. multinationals) to the tax expense and income of U.S. domestics and to the income of foreign corporations. Klassen, Lang, and Wolfson (henceforth KLW) use geographic segment disclosures by U.S. multinationals to divide income into domestic and foreign sources. They compare the changes in domestic and foreign income to determine whether tax-motivated income shifting occurred. The results from these papers are inconclusive and puzzling. Consistent with income shifting, Harris reports that U.S. multinationals paid more U.S. taxes and reported more U.S. income than U.S. domestics from 1987-90 and reported less foreign income than foreign compa-