Comment

The tax reform process that culminated in the December 2017 enactment of the Tax Cuts and Jobs Act followed an unusual pattern regarding business tax reform. In particular, the original proposal, the “Blueprint” put forward by Republicans in the House of Representatives in June 2016 (Tax Reform Task Force 2016) called for the adoption of an approach that, at the time, was unfamiliar to many in the economics profession, a destination-based cash-flow tax (DBCFT). TheDBCFTwould have represented a sharp break from current policy, and the general lack of familiarity with it led many business leaders, policy makers, and economists to misinterpret its aims, characteristics, and properties. The paper by Omar Barbiero, Emmanuel Farhi, Gita Gopinath, and Oleg Itskhoki represents part of a small and growing literature seeking to analyze the DBCFT, or at least one of its key components: a border tax adjustment on imports and exports. In reading the paper, one is reminded of the advantages of following the more standard tax reform approach of analyzing new proposals before voting on them. This is not to say that I agree with all the paper’s modeling assumptions or conclusions, because I do not. But without such concrete analysis, it is difficult to identify key points of professional disagreement and, more importantly, to try to resolve them. The paper analyzes the short-run macroeconomic effects of adopting border tax adjustments on their own, although this is not what was being proposed. However, this is equivalent in the model to analyzing adoption of a full DBCFT, that is, a “source-based” cash-flow tax—a tax on domestic producers’ cash flows—plus border adjustment that removes tax on exports and imposes tax on imports. This equivalence follows because in themodel, a cash-flow taxwithout border adjustment is anondistortionary tax on pure profits—a lump-sum tax that would then be rebated via an