Corporate inversions have been the topic of the summer for tax wonks (beats jellyfish and beach traffic, I suppose), but the issue is a classic bit of Washington misdirection. Instead of focusing on the real disease—an increasingly dysfunctional corporate income tax—we are obsessing over a symptom—firms such as Burger King engaging in self-help reform by relocating their legal residences overseas. The good news is the tax inversion flap has generated some interesting ideas for broader changes in the way we tax multinational firms. One, raised in a July paper published in Tax Notes by Mike Udell and Aditi Vashist, would base a firm’s U.S. taxable profits on the U.S. share of its total worldwide sales. Under such a system, called single sales factor apportionment, a multinational would report income for all its worldwide entities and be taxed on a share of its total worldwide profits. But the tax would be apportioned by the percentage of the firm’s worldwide sales that occur in an individual country. For instance, if half of a firm’s sales occurred in the U.S., half of its worldwide profits would be subject to U.S. tax. The levy would apply to all corporations, whether based in the U.S. or elsewhere. This would be a dramatic change from today’s system, where U.S.-based firms pay tax on current domestic income but defer tax on foreign profits until those earnings are returned to the U.S. while foreign firms pay U.S. tax based on U.S. source income. It would also be a significant shift from current law that treats a multinational corporation’s foreign affiliates as independent entities. Multinationals use today’s rules to sharply reduce taxes by booking profits to affiliates in low-tax jurisdictions and allocating deductible costs to units in high-tax jurisdictions. Single sales factor apportionment is hardly new. In 2012, 18 states used such a system for their corporate income taxes, according to the Institute on Taxation and Economic Policy. Traditionally, states apportioned corporate income taxes on three factors—property, payroll, and sales—though many now overweight the sales component. A few years ago, California tried to expand its apportionment system to include worldwide income but was blocked by the courts. Michael Mazerov of the Center on Budget & Policies Priorities has taken a detailed, but critical, look at the state experience. After reviewing the effects on about 2,100 non-financial businesses, Udell and Vashist figure their plan would generate about $250 billion-a-year at today’s 35 percent rate. Or, it could raise the same amount as the current corporate tax with a rate of 28.6 percent. Their estimate assumes firms don’t change behavior to reduce their tax liability. The authors also make four key adjustments to their basic plan by apportioning worldwide interest expenses, allowing firms to deduct state and local taxes, retaining current law tax expenditures, and adding passive income. The net effect of these changes would reduce their tax base by nearly half. Their plan might be simpler to administer than current law, though it is hardly without complexity. It would stop many current methods of tax avoidance but may open the door to others. And because it would no longer base taxation on the residence of a business, inversions would no longer be an effective way for firms to avoid taxes. The authors acknowledge a huge potential loophole in their idea: While firms must report consolidated income through a single return, they could avoid the unitary tax problem by selling through unrelated non-U.S. third-party businesses that would, in turn, distribute in the U.S. This simple step would reduce U.S. sales by the producing firm, thus allowing it to avoid some U.S. tax. For any formulary apportionment system to really work, all industrialized nations would have to agree to use the same formula, though they could set their own tax rates. That would require new tax treaties across the globe. But because countries with high levels of consumption (such as, say, the U.S.) would reap much of the benefit, it is not clear why poorer, low consumption countries would agree to participate. Still, with its focus on a single formula, the Udell and Vashist plan is a variation on an idea raised by (among others) my Tax Policy Center colleague Eric Toder and AEI’s Alan Viard: Create a worldwide formula for dividing corporate profits among countries. This sounds great, but watching the European Union agonize over relatively modest changes to the tax regime for multinationals, it is hard to see it happening any time soon. Give Udell and Vashist credit for trying to take the international debate beyond inversions. Their idea seems to have attracted interest from some in the business community as well as some progressives, such as the Campaign for America’s Future. Let’s see if it can get any traction among lawmakers.