Destination based cash flow tax

Destination based cash flow tax

Postby Supposn » Sat Jan 14, 2017 6:27 am

Destination based cash flow tax:

This explanation published by the Christian Science Monitor, (a reputable newspaper), is inadequate. Can any of the forum’s members provide a link to a superior explanation of DBCFT?

Excerpted from
http://www.csmonitor.com/Business/Tax-V ... epublicans

“(2) 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”.

Double dipping? Enterprises operating within the USA deduct their normal domestic expenditures for labor costs (from what if corporate income taxes are repealed)?

How would the USA enforce a tax upon money paid to recipients beyond our borders? Isn’t that particularly difficult when the money is passed among globally operating single enterprises, or enterprises associated with each other such as subsidiary enterprises or otherwise independent enterprises that are associated by innumerable manners of other agreements?

What I’ve read thus far implies a proposal that’s only applicable to USA’s international transactions; I consider that to be less rather than more feasible than USA adopting a general value added tax, (i.e. VAT).

Respectfully, Supposn
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Re: Destination based cash flow tax

Postby Supposn » Thu Mar 23, 2017 1:06 am

Destination based cash flow tax
Excerpted from:
https://taxfoundation.org/house-gop-s-d ... explained/

The GOP’s plan would alter the corporate income tax in five major ways:
1. The tax rate would be lowered to 20 percent.
2. Businesses would no longer need to depreciate capital investments. Instead, they will be able to fully write off, or expense them, in the year in which they purchased them.
3. Businesses would no longer need to pay tax to the IRS on profits they earn overseas.
4. Businesses would no longer be able to deduct interest as a business expense.
5. The corporate tax would be “border adjusted.”

These changes turn the tax into what is called a “destination based cash flow tax.”
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Our current corporate tax policy of treating all enterprises’ interest paid as an ordinary reduction of their taxable incomes always made sense to me.
The proposal for transforming our taxing system on individual and enterprises net incomes to be “destination based cash flow taxes”, (DBCFT) would no longer enable reducing taxable income by the expenditures of interest paid.

This has significant consequences upon industries such as railroads or public utility corporations that are price regulated and highly sensitive to their debt service costs. This change will significantly increase the costs of enterprises that borrow and consequentially increase their products prices; I don’t think the policy’s inflationary but it will discourage new enterprises from being launched and hinder their survival in their early years; established enterprises with cash on hand will be at advantage. these consequences are economically net detrimental.

[I’ve always been opposed to our policy of paying corporate dividends from post-tax rather than pre-tax dollars and then granting EXTREMELY favorable tax rates to individuals’ dividend incomes. I suspect discouraging the payment of dividends has encouraged USA corporations to expand into other unrelated industries that make little financial sense; the establishment of corporate empires have been more driven by our tax laws rather than due to logical business determinations.]
I believe this policy modification of paying interest from post taxed revenue will consequentially be additional, (if not of greater) detriment to our economy.

It seems to be that DBCFT is drafted to eliminate all tax deductions for all payments to parties beyond our national borders. (I don’t know if this is feasible).
It’s problematic to question mutually agreeing parties as to aggregate amounts of interest and any or all other than interest payment amounts of wealth being transferred between them internationally.

Respectfully, Supposn
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