Weekly SSRN Tax Article Review And Roundup: Scharff Reviews Shaviro's A Requiem For The Destination-Based Cash Flow Tax

This week, Erin Scharff (Arizona State) reviews a new working paper by Daniel Shaviro (NYU), Goodbye To All That:  A Requiem for the Destination-Based Cash Flow Tax.  

In teaching tax policy, I tend to focus on the core tax policy ideas of efficiency, fairness, and administrability, and I explicitly side step questions of government spending.  In thinking about the 2017 tax legislation, and, especially after reading Shaviro’s latest working paper, I question whether such debates can be so neatly self-contained.  The story Shaviro tells of the demise of the Destination-Based Cash Flow Tax (DBCFT) proposal is, in part, a story about what happens when tax policy gets debated in that vacuum.  Policy debates overly-focused on the right choice of tax instrument inherently obscure the debate about revenue sufficiency and the potential need for multiple tax instruments. 

I was privileged to hear Shaviro present an earlier draft of this paper at this fall’s National Tax Association conference, before we all were quite certain where the 2017 tax legislation was heading (or whether it would head anywhere at all.)  In the paper (as in the presentation), Shaviro is quite critical of the DBCFT proposal.  For Shaviro, the chief advantage of the DBCFT was the packaging of the idea as corporate tax reform, and its failure to be adopted in 2017 suggests “wholly discarding the DBCFT as a discussion vehicle for its underlying policy ideas.” 

Shaviro suggests three justifications for this “harsh” assessment.  First, because the DBCFT does not change the way the U.S. taxes nonbusiness individual income, Shaviro argues that its advantages over the current system are hard to evaluate, and its political failure in 2017 suggests that the potential positive political optics of the proposal may not outweigh this drawback.  Second, Shaviro objects to framing the proposal as an improvement of the corporate income tax when, in fact, it is a replacement for a corporate income tax.   Finally, building on this second objection, Shaviro suggests that the DBCFT obscures the debate about the right rate to tax corporate income and argues that there are reasons to think that rate should be higher than zero.

In leveling these critiques, Shaviro also offers a readable introduction to the debate about fundamental tax reform in the United States, at least for those with some general understanding of the advantages of consumption versus income taxation.  He connects the DBCFT proposal with its intellectual origins in the Hall-Rabushaka Flat Tax and David Bradford’s X-Tax, and he sketches, in broad outlines, some of the very real problems in our current corporate income tax regime.

Certainly, proponents of the DBCFT will respond vigorously to Shaviro’s critique. And it is amazing that an academic idea moved so quickly not only to the policy world but also the political world.  To the extent we are in very uncertain political times, it maybe premature to assume failure in 2017 means permanent failure.  Nevertheless, I am persuaded by the core of Shaviro’s critique.

Further, I wonder if framing the DBCFT as a corporate tax reform does more than obscure evaluation of the proposal.  In my own experience explaining the proposal to non-specialists, including practicing tax lawyers, my impression was people found the way the regime determined tax liability confusing.  Because they were evaluating the proposal as a suggestion for corporate tax reform, they were troubled by the way DBCFT liability did not track a firm’s profit. 

Though I’m doubtful that a more direct discussion of adopting a consumption tax would have led to a different outcome in 2017, Shaviro is right that that is the conversation we should be having. 

Here’s the rest of this week’s SSRN Tax Roundup:

• Tyler Alcorn (University of Mississippi), American Business USA Corp: The Cloudy Lines of the Dormant Commerce Clause in Sales Taxation, Working Paper Series.
• Michael Doran (University of Virginia), Legislative Entrenchment and Federal Fiscal Policy, Law and Contemporary Problems, 2018, Forthcoming.
• Brian D. Galle (Georgetown), Design and Implementation of a Charitable Regulation Regime, Working Paper Series.
• Ufuk Gergerlioğlu (Hitit University), The Analysis of Attitudes of Tax Amnesty Non-beneficiaries and Tax Amnesty Beneficiaries: Evidence from Turkey, Working Paper Series.
• Hans Gribnau & Ave-Geidi Jallai (Tilburg), Aggressive Tax Planning and Corporate Social Irresponsibility: Managerial Discretion in the Light of Corporate Governance, Working Paper Series.
• Nebojsa Jovanovic (Deloitte Netherlands) & Merkx Madeleine (Leiden University), Welmory: A Recipe for VAT Avoidance?, Working Paper Series.
• Nebojsa Jovanovic (Deloitte Netherlands) & Merkx Madeleine (Leiden University), The Cost Sharing Exemption Under Debate - Part I, Working Paper Series.
• Michael S. Knoll (University of Pennsylvania) & Ruth Mason (University of Virginia), Dual Residents: A Sur-Reply to Zelinsky, State Tax Notes, P. 269, January 15, 2018, U of Penn, Inst for Law & Econ Research Paper No. 18-4, Virginia Law and Economics Research Paper No. 2018-01.
• Ashrita Prasad Kotha (National Academy of Legal Studies and Research (NALSAR) University), The Mauritius Route: The Indian Response, 62 St. Louis L.J. (2018).
• Merkx Madeleine (Leiden University), Fixed Establishments in European VAT - BEPS's Side Effects, Working Paper Series.
• Merkx Madeleine (Leiden University), New Implementing Measures for EU Place-of-Supply Change 2015, Working Paper Series.
• Merkx Madeleine (Leiden University), Should EU VAT Apply the Recharge Method in the Place of Supply Rules for B2B Services?, Working Paper Series.
• Merkx Madeleine (Leiden University), The VAT Consequences of Crowdfunding, Working Paper Series.
• Merkx Madeleine (Leiden University), VAT and Holding Companies: Position Finally Clear, Working Paper Series.
• Merkx Madeleine (Leiden University), VAT on Private Use of Company Cars in Cross Border Situations: Double or Non-Taxation?, Working Paper Series.
• Martin Petrin (University College London), Corporate Tax Avoidance - The Problem of Aggressive Tax Planning, Working Paper Series.
• Felipe Rusinque (Universidad Externado de Colombia), The Establishment and Modification of Taxes as Events Susceptible to Alter the Economic Equilibrium of Public Procurements, Revista Digital De Derecho Administrativo. No. 19, Enero-Junio de 2018.
• Erick Sam (Duke), From Each According to His Ability: An Analysis of Endowment Taxation and Potential Earnings, Working Paper Series.
• Michael Simkovic (USC Gould), Limited Liability and the Known Unknown, Working Paper Series.
• Nathan Simpson (University of Mississippi), The Transition Tax: Influencing Corporate Spending with One-Time Tax Breaks, Working Paper Series.
• Danielle Spiegel-Feld & Lauren Sherman (NYU), Expanding Green Roofs in New York City: Towards a Location-Specific Tax Incentive, NYU Environmental Law Journal, Vol. 26, No. 3, 2018.
• Emily Warwick (University of Mississippi), Title IX, Tax-Exemption, and Transgender Students: Using Federal Guidelines to Determine the Tax-Exempt Status of Single-Sex Institutions, Working Paper Series.
• Bret Wells (University of Houston), Reform of Corporate Distributions in Subchapter C, 37 Virginia Tax Review 365 (2018), U of Houston Law Center No. 2018-A-2.