Donald J. Trump, the President-Elect of the United States, may have stymied Destination Based Cash Flow Tax or DBCFT even before it has any chance. In his media interviews, he clearly expressed his disapproval for the tax. The DBCFT is a favorite among a number of House Republicans like Kevin Brady and Paul Ryan, the Committee Chair of Ways and Means Committee and Speaker respectively. Other than Republican heavyweight backing, a number of economists have also shown support to the plan.
DBCFT and border adjust-ability
The DBCFT is constructed on the border adjust-ability concept. Under this scheme, firms will not pay any YS taxes on services and goods sold outside the United States. However, they cannot deduct the imported goods cost. Ironically, the scheme fits perfectly into the Trump agenda. Taxes on US exporters will be reduced. The corporate tax code will be replaced by consumption tax. It will also discourage any tax due corporate inversions by the US based firms. According to specialists working at Tax Policy Center, the scheme will collect about $1.7 trillion revenues over a span of 10 years. The Republicans can then use the money to down the rates of business tax. The Tax Policy Center estimates that this new method could sponsor a whopping 60 percent of the total cost of House GOP plan when it comes to reduce the corporate rates from the present 35 percent to about 20 percent.
Trump, however, has doubts about this tax scheme. He labels it as too complicated and alleges that this can be a bad deal. Similar sentiment has been echoed by US retailers and a number of other businesses who are heavily reliant on imports for goods production.
Even though the tax cannot be explained in an easy manner, the DBCFT is actually much simpler than present corporate tax. The tax, unlike its compatriots, does not try to find out where the facilities of a company are located and where the firm holds its patents. It does not care where a company’s headquarter is domiciled. The DBCFT will impose taxes only where the goods will be sold. If the products are sold in the United States, it will be subjected to US tax. However, as Trump noted, sorting out expense of parts sourced from foreign countries will be complicated. However, the tax will be administratively much simpler. The DBCFT is actually Value Added Tax or VAT- a hated term for most Republicans.