Destination Based Cash Flow Taxation: A Critical Look at Proposed Corporate Tax Reform and its Impact on the States

The 2016 House Republican Blueprint proposes business tax reform that establishes a destination-based cash flow taxation system (DBCFT). Supporters of DBCFT believe a border adjustment tax appropriately addresses the common concern that modern globalization has outpaced U.S. tax legislation. Stated goals of the border adjustment tax (BAT) are to reduce compliance costs, remove special interest subsidies and crony capitalism, encourage domestic economic growth. This paper contains expositional analysis on the theoretical ramifications associated with a shift to a destination-based system. I evaluate the current and proposed corporate tax systems against four generally accepted standards for a good tax: sufficiency, convenience, efficiency, and fairness. My research suggests that a border adjustment tax offers improvement in sufficiency and convenience. However, the BAT does not pass the criteria for efficiency and fairness. Lastly, I add scenario driven research on how the border adjustment tax (BAT) will affect business taxation in California. I conclude that statewide universal adoption of the border adjustment tax produces the highest California state tax revenue under a federal system of DBCFT