Adam N. Michel
Adam N. Michel
A key piece of the 2016 House Republican Tax Reform Blueprint proposed remaking the corporate income tax into a destination-based cash-flow tax (DBCFT). The new tax would have included a border adjustment that raised about $1 trillion in revenue to offset the cost of other tax cuts. Cash-flow taxes are relatively uncontroversial. They allow businesses to fully deduct their costs upfront so that they only pay taxes on their profits when investments are deployed productively. Destination-based income taxes, which require a tax and rebate system to “border adjust” the levy, face numerous theoretical and practical implementation issues.
As Congress readies for the 2025 expiration of the 2017 tax cuts, policymakers will desperately search for ways to offset some or all of the more than $4 trillion price tag to make the reforms permanent.
The desire for additional revenue and former President Trump’s penchant for imposing across-the-board tariffs on all imports has resurfaced the idea of a border-adjusted corporate income tax. Writing for the Heritage Foundation’s Project 2025, Peter Navarro, Trump’s director of the White House National Trade Council, calls the new tax “an innovative alternative to the application of tariffs.”
Whenever a bad idea raises its head after being abandoned, it’s worth reviewing the reasons the idea was abandoned the last time.
Border Adjustments in Theory
Adding a border adjustment to the corporate income tax would allow exporting firms a deduction for the cost of exports and would tax the value of imports at the corporate tax rate (currently 21 percent). This tax effectively raises revenue by taxing the value of the US trade deficit.
Combining an effective export subsidy and a tax on business imports creates a system that only taxes profits earned from consumption in the United States (i.e., the destination of the goods and services). » Read More
https://www.cato.org/blog/reviewing-case-against-border-adjusted-corporate-income-tax