Stepping Up To BAT: Don’t Count It Out

Last week, tax policy was front and center with the Trump administration’s tax outline and bullet points with guiding principles for desired tax reforms. One focus of the outline is to lower corporate tax rates toward 15%, to simplify some of the individual tax brackets and to double the standard tax deduction, all while keeping tax deductions for personal mortgage interest and charitable donations. One of the key debates involves how much new revenue the government tries to offset while bringing down higher corporate rates to make the United States more competitive for corporations and investment.

I had two tax policy experts on my podcast last week: Brian Reardon, an advisor to the American Made Coalition who also worked with President George W. Bush on his tax reform proposals in 2003, and Gordon Gray, director of fiscal policy at the American Action Forum. Gray suggested that the concept of doing your tax return on one page caught on to such a degree that Trump’s team thought the whole tax code should be on one page. If only it could be that simple.

Replacing Corporate Taxes with a Cash Flow Tax: How to Remove the “Made in America Tax”

Reardon described the plan from House Speaker Paul Ryan and Rep. Kevin Brady as a comprehensive way to effectively replace the corporate income tax with a cash flow tax. This is a central feature of the border adjustment tax (BAT). The Ryan-Brady plan reduces rates, allows for immediate expensing of investments and moves to a territorial-based system. It also attempts to level the playing field between products made abroad and products in the U.S. by removing what Rep. Brady calls the “Made in America Tax.” This results in a shifting locus of taxation from where things are produced to where things are consumed.

Reardon described the shift as a fairly radical change from the current regime but added that it would also take us from one of the worst incentive schemes, one that encourages companies to move production overseas, toward a regime that will give foreign companies an incentive to move their headquarters to the United States.