Although not entirely obvious at first glance, this is a tax on consumption. Here's a simple explanation, taken from the clunkily titled <i>Australia's Future Tax System Review</i>: <a href="http://i.imgur.com/ocRMR0n.png" rel="nofollow">http://i.imgur.com/ocRMR0n.png</a>. Consumption taxes that don't create high administrative burdens for businesses (CFTs are arguably less burdensome than VATs), are a very efficient way to raise tax revenue. However, I do take issue with this part of the article, where they're talking in the context of wages being deductible under a CFT (so that only labour value-add is taxed):<p><i>"Taxing wages is the thing that makes VATs regressive, hitting poor consumers the hardest."</i><p>This is not entirely correct. Although taxes on gross labour might shift production towards higher capital intensity, I don't think VAT's actually tax the gross labour component of production (though I'm not 100% certain here). Value-added taxes, and consumption taxes in general (including CFTs), are regressive because they are levied at a flat rate and people on lower incomes usually cannot defer consumption: many have no choice but to immediately spend ~100% of their income as soon as they receive it. The inability to defer consumption also reduces scope to consume in an 'inter-temporally efficient' manner (e.g. volume discounts), further compounding the regressive effect. And although I have no real data to back this up (not that I've looked), I'd imagine the poor spend a larger proportion of their lifetime income domestically compared to the rich.<p>I'll stop here. I'm not trying to say CFTs or consumption taxes are bad (in fact, I think they're good if done properly). But people should be aware that any consumption tax introduction must also be accompanied by upwards adjustments of low-income transfer payments and reduced low-income earner tax burden elsewhere in the system (and this should be part of the public discussion). Otherwise it will shift a larger amount of the overall tax burden on to the poor.<p>EDIT: Giving it a bit more thought, this might be a good 'thin end of the wedge' to build towards 'basic-income/negative income tax'. And handing out some unconditional lump sum to every citizen also helps with some of the equity concerns.
Perhaps a better analysis, from a more politically-neutral source:<p><a href="https://taxfoundation.org/understanding-house-gop-border-adjustment/" rel="nofollow">https://taxfoundation.org/understanding-house-gop-border-adj...</a><p>Also this: "Talking Tax Reform: A Discussion of Border Adjustability & Cash-Flow Taxes"<p><a href="https://www.youtube.com/watch?v=FO1rlheCigk" rel="nofollow">https://www.youtube.com/watch?v=FO1rlheCigk</a>
I work at the Tax Foundation--a non-profit, non-partisan policy research group--and we've been working a lot lately to try and explain exactly what a destination-based cash flow tax is. There has been a lot of misunderstanding around it generally. It's not an idea that's been talked about in US tax policy much before. Our federal program director Kyle Pomerleau summed it up like this[1]:<p>> destination-based cash-flow tax = current law - corp. tax + VAT - payroll tax.<p>[1] <a href="https://twitter.com/kpomerleau/status/807355060170739712" rel="nofollow">https://twitter.com/kpomerleau/status/807355060170739712</a>
I would like to see a tax system that makes it more attractive to hire people and pay them well. I am not that versed in economics but are there any such proposals out there? The current trend with more and more income going to the upper ranks should be stopped.
To summarize, is it right to understand it this way:<p>I am a widget maker. I sell $100 of widgets to my friends domestically. I sell $100 widgets to foreigners over the internet. I use $50 of local materials and services, e.g. wood and labor (in the form of wages I pay my staff). I use $50 of foreign materials in the form of some rare earth metal stolen from a Central African country. And the tax rate is 20%.<p>Thus, in the current system I would have $200 in total revenue. $100 in the expenses (both domestic and foreign imports) I deduct. Leaving me with $100 profit on which I pay $20 to the government as tax.<p>In the proposed system I have $200 in revenue. I pay no tax on the $100 I exported. I pay 20% on the $50 domestic profit (so $10). And 20% on the $50 of imports (so $10). Total to government is $20.<p>(Side thought: Apple could bring all its cash back immediately in this scheme tax free by buying a $50 billion widget from Apple HQ.)<p>EDIT: Actually the comparison to VAT (GST as we called it in NZ/Aus) makes it confusing, the way that works in those countries (where I'm familiar with it) it would seem to imply the proposal is more like: I have $100 in foreign revenue on which no VAT is collected. I have $100 in domestic revenue on which I charge 20% VAT (i.e. the people buying domestically are paying me $120, I'm collecting that $20 for the government). That $50 of imports has 20% VAT added to it, so it cost me $60. That $50 of domestic expenses had 20% VAT added to it by those suppliers, i.e. also costing me $60. I've collected $20 in VAT from people buying my goods and services domestically, and I've paid $20 in VAT to my suppliers, so come the end of the year I pay nothing to the government. The governments revenue of $20 from this whole chain comes from the end users of products to the primary producers of the original goods and services (in this case my suppliers would be paying $20 to the government on behalf of my customers). How does this differ from a VAT?
I'm curious what this tax would change for :<p>- iPhones made in China and sold in Europe (i.e. would Apple have an incentive to involve Apple USA or not)<p>- iPhones made in China and sold in the U.S.<p>- U.S. based company (LLC/C-Corp) offering SaaS subscriptions in the U.S. and abroad
Uf I'm reading the article correctly, the net effect of this tax will be somewhere between zero and very small. What would be the point, then? If I am wrong about this, I would like to know.
Step 1: Congress imposes a border-adjusted cash flow tax.<p>Step 2: Businesses switch to <a href="https://en.wikipedia.org/wiki/TransferWise#How_it_works" rel="nofollow">https://en.wikipedia.org/wiki/TransferWise#How_it_works</a>.<p>Step 3: A lot less money crosses the border, so Congress doesn't collect any tax.
>The tax reform plan being considered by Congress also involves huge rate cuts, which would swamp any progressivity benefit of the new tax design and mainly benefit the rich.<p>So it's a pretty design, but if it drops the revenue the government makes it's still a big handout to the wealthy.