GOP Lawmakers Discuss Destination Based Cash Flow Tax; Democrats Say Tax Code is Inefficient

CCH Tax Day Report

GOP Lawmakers discussed their destination-based-cash-flow tax (DBCFT) proposal in Washington, D.C. on February 6 and 7. Meanwhile, Democrats in Congress have highlighted the tax code’s inefficiency.

Under the House GOP tax reform blueprint, the DBCFT would reduce the corporate tax rate to 20 percent and allow businesses to write off capital investments. Additionally, the lowered corporate tax would be in conjunction with border adjustability, meaning imports would be taxable but not exports. According to William Gale, co-director of the Urban Brookings Tax Policy Center, however, there is a “disjuncture between the notions that we need to move to a cash flow tax and we need to reduce the corporate tax rate—we certainly don’t need to do both.” That said, a DBCFT “solves a lot of the problems that people have with the current corporate income tax,” Gale said at a February 6 Tax Foundation event.

Rep. Peter Roskam, R-Ill., chairman of the House Ways and Means Tax Policy Subcommittee, discussed the DBCFT at a Heritage Foundation event in Washington, D.C. Roskam said he, too, believes tax reform will happen in 2017. “Nearly every country in the world adjusts its borders. The U.S. is the only major country that makes its own companies pay taxes twice,” Roskam said.

Despite all the DBCFT discussion, however, “we are in a holding pattern until legislation is released,” Ray Beeman, co-leader, Washington Counsel Ernst & Young, said on February 7. The GOP blueprint only briefly mentioned border adjustability, according to Beeman.

Economists at the Treasury Department have been thinking about the DBCFT for a long time, according to Elena Patel, a Treasury economist. The issue, however, is that there is “no real-world example of it,” she added.

Some Republicans and industry leaders have expressed concerns over the DCBFT and a lack of clarity as to how it will be structured. Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, said during the week of January 30 that he still needs a number of questions answered on the DCBFT before he can take a definitive position on the proposal (TAXDAY, 2017/02/02, C.1).

“I hope there will be an opportunity to work with Republicans on tax reform,” Ways and Means ranking member Richard Neal, D-Mass., recently said in an interview. “There is broad agreement on what is wrong; there is less agreement on the path to take to correct what is wrong. The current American tax code on the corporate and personal side really is underproductive and inefficient,” he said.

At a recent hearing, Sen. Angus King, I-Me., who caucuses with Democrats in the Senate, questioned if the Bush-era tax cuts had stimulated economic growth. “The evidence from the Bush tax cuts didn’t seem to stimulate [the economy],” King said.

By George L. Yaksick, Jr., and Jessica Jeane, Wolters Kluwer News Staff

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