Back of the envelope calculations indicate significant revenue can be raised if California conforms to GILTI.

The California Legislature is considering a bill (AB 71) that would subject 50% of a category of income derived from federal tax law, known as Global Intangible Low-Taxed Income (GILTI), to California’s corporate income tax. In short, GILTI represents an attempt by the federal government to estimate, by formula, how much income — really earned in the US — has been shifted to low-tax jurisdictions to avoid US tax.

I have written extensively about what GILTI is, why states should tax it, why they can tax it and even why this is likely to raise a lot of revenue.


Elon Musk and California’s Income Tax

The tax lesson illustrated by the Elon Musk saga is not what you might think.

By David Gamage and Darien Shanske

Elon Musk has left California, or so he says.[1] And so cue the gnashing of teeth about California’s relatively high top personal income tax rates.

The funny thing about this is that the real tax-related story about Musk’s potential leaving is that California’s taxes are not high enough — or, to be more precise, do not apply broadly enough, to enough income.

The notion that Elon Musk could not afford California’s taxes or high cost of living is, of…

States Should Borrow Rather than Make Brutal Cuts During a Recession and Pandemic

By Darien Shanske and David Gamage

In a world in which the level of government best suited to act (the federal government) is dysfunctional, subnational governments need to take extraordinary measures. Lest anything that follows be misunderstood, we have already argued that it is the federal government that should ideally borrow and then provide aid in order to stave off savage cuts at the state and local levels.[1] Unfortunately, so far, the federal government has not acted sufficiently, nor given much comfort that it will, at least…

This is a great time for the states to make changes that they should have made anyway.

By Darien Shanske, Reuven Avi-Yonah and David Gamage


The federal government should provide states and localities with a hundreds of billions of dollars in aid. However, it is unlikely the federal government will do enough, fast enough. States and local governments, which generally operate under balanced budget constraints, are, accordingly, already making sweeping cuts. Such cuts will deepen the recession and cut services when they are most needed.

Rather than make such cuts, it would be better to raise taxes on those…

There is no time to lose in heading off large, destructive and unnecessary state and local budget cuts.

[UPDATE: For further discussion of this proposal, see here.]

States and localities have already started planning for dramatic cuts to make up for plummeting tax revenues. This is a disaster for many reasons, including that many of these services are desperately needed and that what is not needed are more layoffs in the midst of a deepening recession. But state and local governments cannot have operating deficits and so cut they must. (For more on this background, see here.)

Ideally, the federal…

There is an updated (And shorter) post on how the Fed should lend to states here. An updated post on the municipal market will be ready soon.

[Author’s Note: What follows are some initial thoughts on an unprecedented situation. I intend to revise this post in light of new information and further thinking. Please e-mail me your thoughts.]

Update: On April 9th, the Federal Reserve acted, but only to alleviate the cash flow problem detailed below. However, the Fed noted that it “will continue to closely monitor conditions in the primary and secondary markets for municipal securities and will evaluate…

This reform would be fair, efficient, administrable and legal. Recent arguments made to the contrary by the Massachusetts Taxpayers Foundation do not hold up to scrutiny.

I have already written a great deal on why states should conform to a provision of federal tax law known as “GILTI.” See here for the policy argument, here for the legal argument and here for a short summary of the first two essays. Furthermore, recent analysis done by the respected Penn Wharton Budget Model demonstrates that this change would raise a significant amount of revenue.

In Massachusetts, a serious and thoughtful proposal is on the table to have the state conform to GILTI. The Massachusetts Taxpayers Foundation (MTF) has responded that “taxing [GILTI] would be “complicated, costly and could…

The severity of the current crisis makes it more, not less, important that states get tax policy right

[Note that this post has been edited/updated to reflect the Coronavirus pandemic.]

Post-Pandemic Introduction

The post that follows was written at the beginning of February. That feels like it was a very long time ago. Tax policy is not and should not be on the top of the state legislative agenda right now, but decisions about taxes cannot be put off forever, especially in the states, which operate under balanced budget rules — as do hard hit localities that will be looking to the states for help. …

Or State Tax Administrators in an Age of Statutes

[UPDATE: For those looking for a further discussion of some of the legal issues raised below, please see here.]

This is the story of an arbitrary and destructive interstate tax shelter, one created by the federal government. No, this is not about collecting the sales and use tax. That tax shelter is largely on its way out; it was created by the Supreme Court in 1967, embraced anew in 1992 and finally ended, by the Court, in 2018, in a case called Wayfair. The tax shelter I am talking about in…

California and GILTI

California should conform to GILTI, but in its own special way

[Note: I consider some of these issues in greater depth here and here.]

GILTI is a provision of the TCJA meant to combat base erosion. I have argued that the states should conform to it, at least unless they are prepared to do something better (like mandatory worldwide combination). By this logic, California should conform to GILTI too. What makes the California situation tricky is that California has had a GILTI-like provision on the books for over thirty years. California should not drop this other provision…

Darien Shanske

Professor of Law and Political Science, UC Davis

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