Why the House GOP Tax Plan is a VAT in Disguise

If you think that the House GOP tax plan (available here) would cut the corporate tax rate, you’re right.  What you may not know is that it would cut the corporate rate to ZERO.  That’s because the 20% corporate cash-flow tax in the House GOP is not an income tax at all but a consumption tax, which is to say, pretty much the same thing as a 20% value-added tax (VAT) of the kind many European countries have.  Now, some academics think that a corporate cash-flow tax is a good idea, including Berkeley’s Alan Auerbach.  But we ought to be clear about what’s being proposed. This 2013 paper, by Noël Cunningham and Mitchell Engler, offers an admirably clear analysis of two earlier versions of the same idea.

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