The destination-based cash flow tax has been attracting excitement from all over the place, dim though its current U.S. legislative prospects appear to be. In the EU, for example, I'm going to at least 2 events later this year at which it will be extensively discussed, and I am sure there are plenty more such events.
I don't think the DBCFT merits all this discussion - not because it's bad (depending on the broader context and myriad design/implementation details, it might even be good), but because it's not really a thing in the sense that people think it is.
What is the DBCFT, basically? As per the slides I recently posted, what it would amount to, in the U.S., is (1) enactment of a VAT, plus (2) elimination of the origin-based corporate income tax, plus (3) a wage deduction, plus (4) various other details - e.g., interest generally included and deducted, but no net interest deduction. Let's go through these features, one at a time.
(1) Enactment of a VAT - Nearly all other countries already have one. The key reason for talking about the DBCFT is entirely U.S.-specific. It's about enacting a VAT without having to call it that.
Now, it's true that the policy options other countries might want to consider could include raising their VAT rates and using the extra revenues to help fund eliminating their origin-based corporate income taxes. But if so, why not put it that way? Who needs all the rigmarole about a "DBCFT" to describe and evaluate such a policy move?
(2) Eliminating the origin-based corporate income tax - Other countries tend to have lower-rate origin-based corporate income taxes than ours. But all such taxes, including ours, face serious problems in a world of global tax competition. So there is a case for eliminating origin-based corporate income taxes.
There might also, however, be reasons for keeping them. E.g., in order to tax rents earned by domestic producers on exports (a particularly important issue for the U.S., what with its West Coast IP mega-firms). And/or, to back up the income tax on individuals. Due to such issues, a number of recent U.S. business tax reform proposals have proposed NOT zeroing out the origin-based, entity-level corporate income tax. E.g., Altshuler-Grubert, Kleinbard, Toder-Viard.
The debate here - should origin-based corporate income taxes be eliminated? - is an important one, in which there are significant arguments on both sides. But I think this debate is murked up and mystified, not clarified, by posing the question as "should we shift to destination basis." Yes, there's a good case for having a destination-based consumption tax (i.e., a VAT) in one's tax instrument toolkit. But it isn't either-or - again, the question is whether we should ALSO keep something of the origin-based corporate income tax.
(3) Wage deduction - This is an important feature of the U.S. DBCFT as proposed. In the particular U.S. context, it might cause replacing existing business income taxation with the DBCFT to be more progressive than replacing it with a VAT that raised the same revenue.
But as a more general or abstract matter, one can't have an intelligent or coherent discussion of the wage deduction without looking at the overall treatment of wages in a given fiscal system. So the right question is how should we treat wages overall, not whether taxes that were collected from business entities should have a wage deduction.
The original X-tax proposal by David Bradford (building on the Hall-Rabushka flat tax) was a coherent and comprehensive package. It took a VAT (be it origin-basis, as it was at the end for Bradford, or destination basis) and packaged it not just with the wage deduction, but also with worker-level taxation of wages at graduated rates in the context of also replacing the individual income tax. That was a comprehensive overall plan that one could evaluate coherently.
But, in the DBCFT as such, the rest of the package isn't specified, so we don't know what we're doing overall or why. Now, in the specific U.S. context in which it was originally proposed, this arguably made sense. Alan Auerbach's rationale for the DBCFT, as I understand it, was that, even if non-business income taxation remained largely unchanged due to underlying disagreements, inertia, etcetera, it might still be possible to improve taxation on the business side. That's perfectly reasonable, as an incremental reform idea in the U.S. context. But it doesn't change the point that the fundamental system features to think about aren't "DBCFT or not," but VAT or not, origin-based corporate income tax or not, and how should wages be taxed given the business tax instrument PLUS everything else.
(4) Various other details - In many other ways, the "DBCFT" label or packaging convention has the potential to make things worse. E.g., VATs typically ignore interest income and deductions; the DBCFT would tax interest income, while allowing interest deductions up to the amount of the interest income. But this seems to be proposed less for its own sake than as a consequence of tweaking the existing corporate income tax without having to admit that one is enacting a VAT.
Similarly, combining a wage deduction with the VAT potentially makes business-level refundability problems much worse. So, why not handle wages wholly outside the VAT, such as by adjusting positive tax rates on them directly in the tax instruments that we use to tax wages? Then we wouldn't have to worry as much about refundability, providing interest on net losses, etcetera. The placement of wage deductions inside the DBCFT appears to be a byproduct of subbing it for the corporate income tax without overtly having a VAT (and to make it more progressive than just adopting a VAT while everything else remains the same as a political constraint), rather than of any direct instrumental design rationale.
In sum, let's all (in the academic world, at least - politics may have its own packaging rationales) try to be less excited about the "DBCFT," whether said excitement is favorable or hostile. Instead, let's think more clearly about destination-based VATs, about the retention or not of origin-based income taxes on business activity, about the overall tax treatment of wages, and about the treatment of financial flows and, for that matter, financial firms - all of which might be conceptualized more clearly if we were less transfixed by the shiny new label.