Reply to Grubert (Response to Article by Harry Grubert in This Issue, P. 263‪)‬

The increasingly global nature of American business activity implies that the future of the U.S. corporate income tax hinges on its complicated international tax provisions. Current U.S. provisions for taxing foreign income, and much of the thinking that underlies them, are based on concepts that are commonsensical, but often inconsistent with the underlying economics. The spirited comment by Grubert (2005) on Desai and Hines (2004) is a useful continuation in the ongoing debate on the appropriate taxation of foreign income. It raises numerous points on which intuition can easily go astray and, thereby, indirectly illustrates the benefits of hard and dispassionate analysis. While it is tempting to reply individually to every point raised in this comment, its length suggests that interested readers would benefit most from revisiting the original article. Accordingly, the function of this reply is to address some of the central issues in a manner that may serve to prevent further confusion.