Destination-based cash flow tax

A destination-based cash flow tax (DBCFT). is form of border adjustment tax (BAT) that was proposed in the United States by the Republican Party in their 2016 policy paper "A Better Way — Our Vision for a Confident America", which promoted a move to the tax. It has been described by some sources as simply a form of import tariff, while others have argued that it has different consequences than those of a simple tariff.

The proposed tax is a destination-based, border-adjustable international corporate consumption tax system in which a tax is "applied to all domestic consumption and excludes any goods or services that are produced domestically, but consumed elsewhere." The border adjustments included in the proposal are "taxes or tax reductions that apply when payments for goods and services cross international borders." Imported goods purchased/consumed domestically are subject to the tax while goods produced domestically and sold internationally are exempt.

According to economist Alan J. Auerbach at the University of California, Berkeley, who is the "principal intellectual champion" of the "package of ideas" surrounding border-adjustment tax that had been evolving in academia over a number of years, the destination-based system, which is focused on where a product is consumed, eliminates incentives that multinationals now have to "game the system" through tax inversion and other means, in order to "avoid taxes" and to "shelter profits" by "shifting" "intangible assets to low-tax nations."

Introducing this is the linchpin of the Republican Party's 2016 tax-reform proposal. A major aspect of the tax policy change would result in lowering the corporate tax rate from 35% to 20% by adjusting or removing export sales from the company's taxable revenue, thus leaving large, profitable multinational corporations at a very substantial tax advantage. As that would result in a sizable loss in tax revenue, the border-adjustment tax applied to imports consumed domestically is essential to compensate for the loss. Auerbach's theory is that a border-adjustment tax of 20% would strengthen the US dollar by about 25%. More exports will assumedly be sold because of their lower costs under the border tax subsidy. The stronger dollar would keep domestic consumer costs lower in spite of the 20% corporate income tax being applied to imported goods consumed domestically, effectively cancelling out the higher tax on imports and making the border-adjustment tax value-neutral.

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