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Fundamental Tax Reform and Border Tax Adjustments
Book Data
January 1996
ISBN paper 0-88132-225-3
108 pp.



Fundamental Tax Reform and Border Tax Adjustments

Policy Analyses in International Economics 43

by Gary Clyde Hufbauer
assisted by Carol Gabyzon


This study makes a novel contribution to the ongoing fundamental tax reform debate with its investigation of how proposed reform will affect the international economic position of the United States and especially whether they could be adjusted at the border. It focuses on the business component of the three most popular proposals: the national retail sales tax, the Nunn- Domenici Unlimited Savings Allowance Tax (USA Tax), and the flat tax. If the taxes are adjusted, as the authors propose, they can be rebated on exports of goods and services and imposed on imports. To determine whether adjustment is permissible, the study examines the international rules of governing border tax adjustments. The existing rules distinguish between direct and indirect taxes, between goods and services, and between exports and imports. The authors conclude that there is no problem in adjusting a national retail sales tax on internationally traded goods and services. While the outcome is not cut-and-dried, the business component of the USA Tax is probably also adjustable, both on goods and services and on exports and imports. The biggest international questions will arise if border adjustments are applied to exports of goods under the flat tax. The authors suggest that changes in the international rules may be needed to permit border adjustments for the flat tax.

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