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International Tax, Trade Scholar Tapped for Treasury Role

Feb. 2, 2021, 12:44 AM

A former adviser to President Joe Biden’s campaign, who has been a critic of the 2017 tax law overhaul’s international regime, is now in a key policy job at the Treasury Department.

The administration tapped Kimberly Clausing to lead Treasury’s Office of Tax Analysis as deputy assistant secretary on Tuesday. The office analyzes the economic effects and estimates the revenue effects of tax policy, and staff participate in tax treaty negotiations with foreign governments.

Clausing—a proponent of per-country minimum taxes and free trade and known for her research on multinationals shifting profits to tax havens—could play a major role in digital tax negotiations with the Organization of Economic Cooperation and Development and in rewriting 2017 tax law regulations, observers say.

“She’s our leading economic thinker on how to address multinational profit shifting, which has been a challenge for the last decade,” said Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center and former Joint Committee on Taxation legislative counsel. “So for our Treasury to beef up on this expertise is pretty important, and a sign of the times.”

Clausing tweeted on Monday that she had been sworn in and said she was “fired up and ready to go.” She described tax policy as “a key tool for tackling our biggest challenges, incl. pandemic relief & recovery, climate change, and inequality.”

Clausing joined the University of California, Los Angeles School of Law in January after teaching international economics at Reed College in Portland, Oregon.

Minimum Tax Proposal

In a 2020 paper with University of California at Berkeley researchers Emmanuel Saez and Gabriel Zucman, Clausing and her co-authors laid out their argument for a country-by-country minimum tax to close the gap between the tax rate multinationals pay on their domestic profits and the tax rates they pay abroad. The paper draws on Clausing’s earlier research showing profit-shifting by multinationals to major tax havens flattened out, rather than declined, in the wake of the 2017 GOP tax law.

Clausing, in an interview with Bloomberg Tax last month, described what she sees as the competing—and in some cases perverse—incentives of the law’s international provisions. “The legislation is really making the problem better with one hand and making it worse with another, and the two effects are sort of canceling each other out,” she said.

She criticized Treasury rules for the law’s global intangible low-tax income provision that allows companies to avoid taxes on certain income if their foreign affiliates are already paying at least 18.9% in offshore taxes.

“Whenever you’re introducing an election to a rule, you’re basically saying, for firms where it’s better for you this way, you can elect that,” she told Bloomberg Tax in January. “For firms where it’s not, you can leave things the way they are. So any election is basically a revenue-loser by definition.”

She didn’t respond to a more recent request for comment on her appointment.

Tax Policy Changes

Clausing has also proposed numerous modifications to the 2017 tax law, including:

  • raising top tax brackets;
  • eliminating a 20% write-off for owners of pass-through entities;
  • reducing the estate tax thresholds;
  • raising the corporate rate to 28% from 21%; and
  • slashing a deduction for foreign-derived intangible income.

Her appointment isn’t too surprising given the Biden campaign’s interest in certain international tax policy changes, said Jorge Castro, a former IRS official who served on former President Barack Obama’s transition team in 2008.

“I suspect that when the Green Book comes out, we’re going to see an emphasis in this area, and clearly Professor Clausing is going to have her fingerprints all over it,” said Castro, now a member of Miller & Chevalier Chartered in Washington, referring to a list of tax measures traditionally released by administrations each year.

In 2019, she wrote a book titled Open: The Progressive Case for Free Trade, Immigration, and Global Capital, which criticized former President Donald Trump’s “America-first” agenda and offered a defense of globalization.

Clausing’s views on taxing multinationals and free trade might pit her against others in the administration as the U.S. engages in OECD negotiations over taxing tech giants’ global earnings, said Reuven Avi-Yonah, a professor at the University of Michigan Law School, who has co-authored several papers with her.

“I would think that she would push back on some of the impetus to see that as discriminatory or targeting American companies in particular,” Avi-Yonah said. “It will be interesting to see what happens because obviously there are people on the Hill and in the administration who will push in the opposite direction. But Kim, I think, is not a big fan of trade retaliation. That’s part of what her book is about.”

To contact the reporter on this story: Lydia O'Neal in Washington at loneal@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Sony Kassam at skassam1@bloombergtax.com