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Goodbye to All That?: A Requiem for the Destination-Based Cash Flow Tax

37 Pages Posted: 14 Feb 2018  

Daniel Shaviro

New York University School of Law

Date Written: February 1, 2018


In the aftermath of the short but spectacular career of the destination-based cash flow tax (DBCFT) as a widely-discussed tax reform option in U.S. tax policy debate, this paper argues that we should generally move on from focusing on the DBCFT as a discrete package. While its political future (if any) is hard to predict, discussing it as a package tends to impede, rather than advance, clear thinking about the underlying issues.

The DBCFT has three main elements:

(1) adopting a broad-based VAT (or increasing the VAT rate, in countries that already have one),

(2) reducing the origin-based corporate (or business) income tax rate to zero, and

(3) adopting a wage subsidy.

Intellectual clarity would be greatly advanced by evaluating each of these elements separately, rather than the DBCFT as a package. It also would be advanced by more consistent recognition of the points that:

(1) countries can (and frequently do) have both VATs and origin-based corporate income taxes – it is not an either/or proposition – and,

(2) even if a destination-based VAT is more efficient than an origin-based tax, that does not make the case for having only the former, especially in a system that otherwise retains income taxation of individuals, and that serves distributional goals as well as that of efficiency (which would be advanced even more by having a lump-sum tax).

In addition, the DBCFT, unlike its forebears the flat tax and X-tax, does not involve specifying how individuals are taxed on wage and investment income. This impedes analyzing how it, as compared to those more comprehensive instruments, would affect the fiscal system as a whole, in any given instance where it was adopted.

Keywords: tax reform, destination-based cash flow tax, border adjusted tax, corporate income taxation, value-added taxation

JEL Classification: H20, H24, H25

Suggested Citation

Shaviro, Daniel, Goodbye to All That?: A Requiem for the Destination-Based Cash Flow Tax (February 1, 2018). Available at SSRN:

Daniel Shaviro (Contact Author)

New York University School of Law ( email )

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