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CBIT 2.0: A Proposal to Address US Business Taxation

18 Pages Posted: 3 Sep 2013  

David Hasen

University of Florida Levin College of Law

Date Written: September 2, 2013


In 1992, the Treasury Department proposed a comprehensive business income tax, or CBIT, as a reform option for the taxation of business income. In Treasury's proposal, all taxes on business income (including income of sole proprietorships) would be replaced by a flat, entity-level tax. Interest would be non-deductible and non-includible when paid by CBIT-covered entities. Taxes on dividends would be eliminated. Treasury proposed that a CBIT rate of 31 percent would be revenue-neutral as compared with the law then in effect. The virtues of the CBIT as proposed included removal of the tax biases in choice of entity and in method of business finance, as well as substantial simplification of the tax law.

This paper argues that a modified version of the CBIT, designed to address significant developments since 1992, merits serious consideration as a reform option. The principal change to Treasury's proposal is the addition of a tax on distributions to high earners, coupled with a deduction against that tax for distributions that are timely reinvested. These changes would retain most of the virtues of the original CBIT while enabling Congress to adopt competitive rates and meet existing revenue commitments. The paper focuses on incentive effects and revenue effects. It also discusses how the CBIT would mesh with taxation of cross-border arrangements and compares the CBIT to a national value-added tax.

The paper originally appeared as a Special Report on Aug. 26, 2013, in Tax Notes.

Keywords: Taxation, Business Taxation

JEL Classification: H2, H21, H25, K34

Suggested Citation

Hasen, David, CBIT 2.0: A Proposal to Address US Business Taxation (September 2, 2013). Tax Notes, Vol. 140, August 26, 2013. Available at SSRN:

David Hasen (Contact Author)

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States

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