January 11, 2017

WE ARE ALL PIGOVIAN NOW:

Understanding the Republicans' corporate tax reform (William G. Gale, 1/11/17, Brookings)

The DBCFT has a lot to offer and it deserves a serious look.  But right now, the overall proposal is very poorly understood.  Here are 11 things to know:

The truly radical part is the proposal to effectively abolish the corporate income tax.  The United States would become the only advanced country without a corporate income tax, making it a very attractive location for international investors.
 
The DBCFT is essentially a value-added tax (VAT), but with a deduction for wages.  Every advanced country except the U.S. has a VAT alongside a corporate income tax.  The U.S. would in effect be replacing the corporate income tax with a modified VAT.  A VAT taxes consumption, not income - it has the same effects as a national retail sales tax, but works better administratively.
 
Unlike the corporate income tax, the DBCFT would not distort investment or financing choices.  Instead, it would eliminate taxes on the returns to investment and would treat debt and equity equally.  It would also eliminate all transfer-pricing issues and incentives to shift profits and profitable activities offshore.

One of the good things about mindless partisanship is that all the same folks who swore we must never have a VAT now support it because it's the GOP plan.

And W just keeps looking more and more visionary....

Posted by at January 11, 2017 7:14 AM

  

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