I must be losing my edge. I don’t believe I understand Paul Ryan’s and Kyle Pomerleau’s proposal for a destination-based cash-flow tax (DBCFT) as an alternative to President Trump’s tariffs in an op-ed in the Wall Street Journal. Here’s their description of the tax:
The DBCFT has three important features. First, all investment costs can be immediately deducted rather than depreciated over years or decades. Second, there is no deduction for borrowing costs. Third, a “border adjustment” would subject all imports to a single rate tax while providing all exports with a subsidy at the same rate.
Adopting a DBCFT would finish the job that Congress and Mr. Trump began in 2017 with the Tax Cuts and Jobs Act. That legislation made it more attractive to invest in the U.S. by cutting the corporate income-tax rate and introducing temporary 100% bonus depreciation. Mr. Trump’s One Big Beautiful Bill Act built on this by making the expensing provision permanent and temporarily expanding it to manufacturing structures. The DBCFT would make expensing universal and permanent, eliminating all remaining penalties on investment.
A DBCFT’s border adjustment is a smarter way than tariffs to tax imports. Border adjustments are widely accepted tax policy in most of the world. More than 170 countries, including America, use border-adjusted taxes. U.S. state and local sales and excise taxes are border adjusted. As a result, the DBCFT would be much less likely to prompt retaliation from trading partners.
I understand the export subsidy part of it. What I don’t get is how the import part of it differs from a tariff.
One way or another I agree with them that President Trump should work with Congress to enact into law whatever it is we end up with. That’s assuming, of course, that Congress ever comes back into session.
