Krugman on DBCFT

A Party Not Ready to Govern by Krugman

Then there’s corporate tax reform — an issue where the plan being advanced by Paul Ryan, the House speaker, is actually not too bad, at least in principle. Even someDemocratic-leaning economistssupport a shift to a “destination-based cash flow tax,” which is best thought of as a sales tax plus a payroll subsidy. (Trust me.)

But Mr. Ryan has failed spectacularly to make his case either to colleagues or to powerful interest groups. Why? As best I can tell, it’s because he himself doesn’t understand the point of the reform.

The case for the cash flow tax is quite technical; among other things, it would remove the incentives the current tax system creates for corporations to load up on debt and to engage in certain kinds of tax avoidance. But that’s not the kind of thing Republicans talk about — if anything, they’re in favor of tax avoidance, hence the Trump proposal to slash funding for the I.R.S.

No, in G.O.P. world, tax ideas always have to be presented as ways to remove the shackles from oppressed job creators. So Mr. Ryan has framed his proposal, basically falsely, as a measure to make American industry more competitive, focusing on the “border tax adjustment” which is part of the sales-tax component of the reform.

This misrepresentation seems, however, to be backfiring: it sounds like a Trumpist tariff, and has both conservatives and retailers like WalMart up in arms.