U.S. Tax Reform Update: Border-Adjusted Tax

"This is a theory wrapped in speculation inside a guess. Nobody knows for sure what will happen."

– U.S. Senator Tom Cotton (Republican – Arkansas), describing the border-adjusted tax

Republican lawmakers, having gained control of the U.S. Congress, are eager to reduce the U.S. federal corporate income tax rate. One of the most-discussed proposals to pay for this reduction is a "border-adjusted tax" (BAT), also referred to as a "destination-based cash flow tax."

How much revenue is expected? In theory, the BAT should generate additional revenue equal to the U.S. trade deficit, multiplied by the corporate income tax rate. If the U.S. trade deficit is $500 billion, and the corporate income tax rate is 20% (reduced from the current 35%), then the additional revenue generated by the BAT would be $100 billion annually.