Author: Motohiro Sato, Hitotsubashi University
U.S. President Donald Trump’s tax reform plan, which has sparked international controversy, appears to be settling on cutting the federal corporate tax rate to 15%. This alone is enough to fuel the ongoing international tax war, in which countries compete to attract businesses and investments by cutting corporate tax rates. It could also exacerbate the United States’ fiscal problems. However, the corporate tax rate cut is not the only pillar of Trump’s tax reform. To be precise, the corporate tax reform is based on the House Republicans’ tax blueprint, rather than Trump’s own making, and meant to be a shift to a destination-based cash flow tax (DBCFT). DBCFT is cynically referred to as a “border tax” because imports are taxed (i.e., not deductible as expenses) while exports are not (i.e., excluded from income). However, this structure is the same as that of consumption taxes.
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