In the New York Times, Greg Mankiw applauds the tax reform plan discussed in Congress. He emphasizes four points:
- The reform would move the US tax system toward international norms, from worldwide to territorial taxation.
- It would move the system from income towards less distorting consumption taxation, by allowing businesses to deduct investment spending immediately.
- The reform would change the origin-based into a destination-based system (taxing imports and exempting exports, a.k.a. “border adjustment”), with similarities to a value-added tax, making it harder to game the system. “[T]he immediate impact of the change would be to discourage imports and encourage exports. … the dollar would appreciate … The movement in the exchange rate would offset the initial impact on imports and exports.”
- The reform would abolish tax deductions for interest payments to bondholders, eliminating incentives for corporate leverage. “A business’s taxes would be based on its cash flow: revenue minus wage payments and investment spending. How this cash flow is then paid out to equity and debt holders would be irrelevant.”