Border adjustment tax explained | IN 60 SECONDS
House Republicans have proposed a blueprint for tax reform, under which the United States would adopt a system of destination-based cash flow taxation at the corporate level. What does it mean for corporate taxation to be destination-based, as opposed to origin-based? It means that it’s the location of the consumer, not of the producer, that determines where the cash flow from a transaction is taxed. But the locations of consumer and producer often of the same. Herein lies the complication if consumption taxation takes place at the corporate level, as it would under the House plan and under value-added tax systems. One has to then exempt the cash flow from sales to consumers abroad, and tax the imports purchased by the domestic consumers from overseas producers. Now as long as the US runs a trade deficit, the revenue from taxing imports exceeds the revenue loss from not taxing exports, and House Republicans like that, because it lets them reduce taxes elsewhere. And that, in a nutshell, is what border adjustment is. To learn more about my take on border adjustment, check the links in the description below. Also, let us know what other topics you want AEI scholars to cover in 60 seconds.