Thursday, March 9, 2017
Stephen E. Shay (Harvard) presents “A Better Way” Business Tax Reform: From Theory to Practical Complications (with J. Clifton Fleming, Jr. (BYU) & Robert J. Peroni (Texas)) at Duke today as part of its Tax Policy Workshop Series hosted by Lawrence Zelenak:
This article critically reviews the House GOP proposal to replace the income tax on corporate and individual business income with a hybrid consumption tax in the form of a subtraction method VAT. The proposal would constitute a radical change to the U.S. federal, state and local tax system, which would, as discussed below, (a) be highly regressive and worsen inequality; (b) be vulnerable to attack under international trade law by U.S. trading competitors (with unprecedented potential penalties), (c) be less advantageous for small and medium businesses than for large businesses, and (d) open substantial opportunities for avoidance.
While adjustments can be made to address some, but not all, of the issues identified in the paper, our conclusion is that the probable outcomes of this reform do not justify the magnitude and complexity of the changes required to implement the reform and the increase in inequality that would result.