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1 Kyle Pomerleau, How the Border Adjustment Helps Fix Business Taxation in the United States 1 (2017)

handle is hein.taxfoundation/hborajst0001 and id is 1 raw text is: Written Testimony of Kyle Pomerleau Director of Federal Projects Tax Foundation Before the Committee on Ways and Means TESTIMONY May 2017 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and local levels. We are a 501(c)(3) non profit organization. ©2017 Tax Foundation Distributed under Creative Commons CC BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org How the Border Adjustment Helps Fix Business Taxation in the United States The problems with the current corporate income tax are well-known. The current corporate tax discourages investment, creates an incentive to finance spending with debt over equity, encourages companies to shift profits and headquarters overseas, and is overly complex. In June 2016, the House Republicans released a tax reform plan, titled A Better Way. Part of this tax reform proposal was a fundamental restructuring of business taxation that would eliminate most if not all the current issues with the corporate income tax. The plan would replace the corporate income tax with a 20 percent destination- based cash-flow tax. This tax is different than the current corporate tax in four key ways:2 Businesses would be able to fully expense their capital investments rather than being required to depreciate them over a number of years or decades. Businesses would no longer be able to deduct their net interest expense against their taxable income. Foreign profits would no longer be subject to domestic taxation. The tax would be destination-based, meaning that the plan would make the U.S. income tax border-adjustable. The most novel change the House GOP plan makes to the current tax code is that it applies the destination principle to the U.S. business income tax. This is done by enacting a border adjustment. Under the plan, businesses in the United States 1 A Better Way, Our Vision for a Confident America: Tax, House Republicans. June 2016. https://abetterway.speaker.gov/-assets/ pdf/ABette rWay-Tax- PolicyPaper.pdf 2 Kyle Pomerleau and Steve Entin, The House GOP's Destination- Based Cash Flow Tax, Explained, Tax Foundation. June 30, 2016. https://taxfoundation.org/house-gop-s-destination-based-cash-flow-tax-explained/

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