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.

Author Since: Mar 11, 2019

  1. How universal health care might be paid for through taxes and how much that might end up costing the average American, versus private healthcare.

  2. You're usually very solid in your 1 minute reviews but this one misses the mark rather comically. Let me help you out, Border Tax "Adjustment" (hike) is when the US Government, who can simply never get enough money from taxes, slaps a tax on imports (oh, I'm sorry, what are we calling it now? "Destinations") that is then passed onto consumers through higher prices on the sales floor. In other words: It's a tax on American consumers, because we're the ones who will actually be paying it.

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