by Dr. Roy Cordato
Senior Economist, Emeritas
In general the House tax plan is consistent with sound economic reasoning on tax policy—flattening and lowering personal rates and eliminating the AMT are important and long overdue. The 50% exclusion on investment income—capital gains, interest, and dividends—will help to ameliorate, although not eliminate, the income tax’s bias against saving and investment. On the business tax side the two most important changes are the reduction of the corporate tax to 20% and, maybe even more importantly, abolishing the system of depreciation and instituting expensing for all business purchases. My only quarrel with the plan is the border adjustment tax. From my understanding of the tax it actually violates a basic principle of taxation, namely that the cost of all inputs into a production process, whether the inputs are produced here or imported and whether the product being produced is for home use or export, should be deductible from the taxable income that it is generating. I tend to agree with the analysis put forth by the Mercatus Center and Steve Forbes on this subject.