Destination-Based Cash Flow Tax

 DBCFT is a proposed reform to business taxation that combines features of a cash-flow tax and a destination-based principle. The concept was co-originated by Alan J. Auerbach and Michael Devereux, with contributions by Auerbach dating back to his 1997 article in the American Economic Review, titled The Future of Fundamental Tax Reform.^[14] Auerbach is widely regarded as the "principal intellectual champion" of the DBCFT and related border-adjustment tax policies.^[15]

The DBCFT allows firms to immediately expense all capital investments, known as "full expensing," while disallowing deductions for interest payments.^[16][17] This shifts the tax base to target economic rents (profits above the normal return on investment) rather than taxing normal returns, thus promoting investment efficiency.^[16][15][17] The destination-based aspect shifts the tax burden to where goods and services are consumed rather than produced, implemented through border adjustments that exempt exports from taxation and apply taxes to imports. This structure mirrors the treatment of cross-border transactions under a value-added tax (VAT), although wages remain deductible under the DBCFT framework.^[18]

Advocates of the DBCFT, including Auerbach and colleagues Michael Devereux, Michael Keen, and others, highlight its potential to address challenges such as base erosion, profit shifting, and tax competition.^[19][20] By neutralizing tax distortions between debt and equity financing, the DBCFT can improve corporate investment decisions.^[15][21] Its border-adjustment mechanism reduces incentives for multinational corporations to engage in tax avoidance strategies like transfer pricing, tax inversions, and profit shifting to low-tax jurisdictions.

The concept gained prominence in U.S. tax policy discussions following its inclusion in the Republican Party's 2016 policy paper, A Better Way: Our Vision for a Confident America.^[22] This proposal advocated reducing the corporate tax rate from 35% to 20%, offsetting revenue losses with a border-adjustment tax on imports consumed domestically. Auerbach theorized that the border-adjustment tax would lead to a strengthening of the U.S. dollar by about 25%, offsetting potential cost increases for consumers and rendering the tax value-neutral.

Critics have raised concerns about the DBCFT's compliance with international trade agreements, its administrative complexity, and potential transitional effects on trade balances and exchange rates. The World Trade Organization (WTO) compliance of such a tax has been debated, with some experts, such as Itai Grinberg, proposing ways to structure the tax to align with WTO rules. Additionally, some corporate interests and policymakers have expressed opposition due to fears of increased consumer costs and retaliatory trade measures by other countries.^[21][23]

Auerbach further detailed the benefits and mechanisms of the DBCFT during his testimony before the Tax Subcommittee of the U.S. House of Representatives Committee on Ways and Means in December 2023. He emphasized the tax's ability to create a stable, competitive environment for businesses, eliminate profit-shifting incentives, and simplify tax compliance by focusing on consumption rather than production. Auerbach also addressed misconceptions about the DBCFT, including concerns about trade distortion and regressivity, providing evidence and theoretical frameworks to support the tax's neutrality and progressive implications.^[24]

_________________________________________________________

Alan J. Auerbach
Born	Alan Jeffrey Auerbach 1951 (age 73–74) New York, USA
Known for	Destination-Based Cash Flow Tax (DBCFT) generational accounting dynamic fiscal policy
Honors	Distinguished Fellow, American Economic Association Daniel M. Holland Medal Fellow, National Tax Association Fellow, American Academy of Arts and Sciences Fellow, Econometric Society Order of the Rising Sun[a]
Academic background
Education	Yale University (BA) Harvard University (PhD)
Doctoral advisor	Martin Feldstein
Academic work
Sub-discipline	public finance, fiscal policy, taxation
Institutions	University of California, Berkeley University of Pennsylvania
Doctoral students	Kevin Hassett Owen Zidar
Main interests	macroeconomics public economics law
Notable works	The Taxation of Capital Income Handbook of Public Economics Dynamic Fiscal Policy

Alan Jeffrey Auerbach (born 1951) is an American economist, public policy scholar, and author. Auerbach is known for his contributions to public finance and taxation policy. He serves as the Robert D. Burch professor of economics and law and Director of the Burch Center for tax policy and public finance at the University of California, Berkeley.^[1]

Early life and education

Auerbach attended Yale University, where he graduated summa cum laude with a Bachelor of Arts in economics and mathematics in 1974. He was elected to Phi Beta Kappa. He continued his studies at Harvard University, where he earned a Ph.D. in economics in 1978. At Harvard, he received the David A. Wells Prize for his dissertation.^[2]

Career

Auerbach began his undergraduate career at Yale University where he planned to study maths and physics, until he took an introductory course in economics. Without much exposure to the topic, he was interested in the application of mathematical tools to real world problems, and with support from his professors, went on to pursue a PhD in the field.

Auerbach began his academic career after graduating from Harvard University with a PhD in economics in 1978. His doctoral supervisor was Martin Feldstein, an economist who focused on public finance and would eventually become the chair of the Council of Economic Advisors.^[3] Harvard hired him as an assistant professor after his PhD, and he later became an associate professor of economics in 1982. He joined the University of Pennsylvania in 1983, where he served as a professor of economics and law and where, in 1988, he became the chair of the economics department. Since 1994, he has been a faculty member at the University of California, Berkeley, where he also chaired the department of economics, most recently in 2018.

He has held multiple associations and visiting positions as a research economist; these include serving as a Research Associate at the National Bureau of Economic Research (NBER) since 1978,^[4] Visiting Professor of law at New York University, and Visiting Professor of economics at Yale University.^[2] He is also a Research Associate at the Institute for Fiscal Studies in London and a Research Network Fellow at CESifo in Munich, Germany.

Auerbach is a Distinguished Fellow of the American Economic Association,^[1][5][2] where he served both as an executive committee member and vice president of the organization. He also served as an editor of the Journal of Economic Perspectives and American Economic Journal: Economic Policy.

Other leadership roles include President of the Western Economic Association International, and as President of the National Tax Association.^[6] During this time, he was awarded the Daniel M. Holland Medal for lifetime contributions to the study and practice of public finance.

Notable recognition of Auerbach's work also resulted in his 2021 award of the Order of the Rising Sun, bestowed by the government of Japan for his distinguished contribution to the field of economics.^[7][8] In May 2022, he was presented the certificate of decoration by Minister Daishiro Yamagiwa at the Japan Consulate-General in San Francisco, California.^[7][8]

Auerbach, in 2022, receiving the certificate of decoration of the Order of the Rising Sun from Daishiro Yamagiwa, Minister of State for Economic and Fiscal Policy, Japan.

Research contributions

He has written extensively on taxation, fiscal policy, and macroeconomic stability. He has worked extensively with fellow economist, Larry Kotlikoff, on a pioneering method for an intergenerational assessment of fiscal policy impacts, known as generational accounting. The economists also collaborated on a measurement technique for the fiscal gap between tax revenues and expenditures in the US federal budget, now widely accepted in both academia and industry.^[9] His work has also covered both theoretical and empirical assessments of capital income and corporate tax policy, and specifically the trade-offs on taxation of global corporations, with his work on The Destination-Based Cash Flow Tax (DBCFT). He has served as editor of the Journal of Economic Perspectives and the American Economic Journal: Economic Policy  and held editorial roles in numerous other academic journals, including the Journal of Economic Literature, American Economic Review, National Tax Journal, and International Tax and Public Finance.^[10]

Some of his most cited work include Measuring the Output Responses to Fiscal Policy, a paper which found public spending results in a higher fiscal multiplier - or higher economic activity per dollar spent - during recessions.^[11] Additional work on the fiscal multiplier with Yuriy Gorodnichenko includes a chapter, Fiscal Multipliers in Recession and Expansion in the book, Fiscal Policy after the Financial Crisis.^[12] Dynamic Fiscal Policy from 1988 is well cited, as it was a groundbreaking paper that developed a tax simulation model capable of assessing the impact of alternative tax policies in the US.^[13]

Destination-Based Cash Flow Tax

DBCFT is a proposed reform to business taxation that combines features of a cash-flow tax and a destination-based principle. The concept was co-originated by Alan J. Auerbach and Michael Devereux, with contributions by Auerbach dating back to his 1997 article in the American Economic Review, titled The Future of Fundamental Tax Reform.^[14] Auerbach is widely regarded as the "principal intellectual champion" of the DBCFT and related border-adjustment tax policies.^[15]

The DBCFT allows firms to immediately expense all capital investments, known as "full expensing," while disallowing deductions for interest payments.^[16][17] This shifts the tax base to target economic rents (profits above the normal return on investment) rather than taxing normal returns, thus promoting investment efficiency.^[16][15][17] The destination-based aspect shifts the tax burden to where goods and services are consumed rather than produced, implemented through border adjustments that exempt exports from taxation and apply taxes to imports. This structure mirrors the treatment of cross-border transactions under a value-added tax (VAT), although wages remain deductible under the DBCFT framework.^[18]

Advocates of the DBCFT, including Auerbach and colleagues Michael Devereux, Michael Keen, and others, highlight its potential to address challenges such as base erosion, profit shifting, and tax competition.^[19][20] By neutralizing tax distortions between debt and equity financing, the DBCFT can improve corporate investment decisions.^[15][21] Its border-adjustment mechanism reduces incentives for multinational corporations to engage in tax avoidance strategies like transfer pricing, tax inversions, and profit shifting to low-tax jurisdictions.

The concept gained prominence in U.S. tax policy discussions following its inclusion in the Republican Party's 2016 policy paper, A Better Way: Our Vision for a Confident America.^[22] This proposal advocated reducing the corporate tax rate from 35% to 20%, offsetting revenue losses with a border-adjustment tax on imports consumed domestically. Auerbach theorized that the border-adjustment tax would lead to a strengthening of the U.S. dollar by about 25%, offsetting potential cost increases for consumers and rendering the tax value-neutral.

Critics have raised concerns about the DBCFT's compliance with international trade agreements, its administrative complexity, and potential transitional effects on trade balances and exchange rates. The World Trade Organization (WTO) compliance of such a tax has been debated, with some experts, such as Itai Grinberg, proposing ways to structure the tax to align with WTO rules. Additionally, some corporate interests and policymakers have expressed opposition due to fears of increased consumer costs and retaliatory trade measures by other countries.^[21][23]

Auerbach further detailed the benefits and mechanisms of the DBCFT during his testimony before the Tax Subcommittee of the U.S. House of Representatives Committee on Ways and Means in December 2023. He emphasized the tax's ability to create a stable, competitive environment for businesses, eliminate profit-shifting incentives, and simplify tax compliance by focusing on consumption rather than production. Auerbach also addressed misconceptions about the DBCFT, including concerns about trade distortion and regressivity, providing evidence and theoretical frameworks to support the tax's neutrality and progressive implications.^[24]

Generational accounting

In their 1991 paper "Generational Accounts: A Meaningful Alternative to Deficit Accounting", Alan Auerbach, Jagadeesh Gokhale, and Laurence J. Kotlikoff introduced generational accounting as an alternative to traditional deficit accounting for evaluating fiscal policies. They argued that conventional deficit metrics were arbitrary and failed to capture the intergenerational implications of fiscal policy. Generational accounting provided a framework to assess the lifetime net tax burden (taxes minus transfers) imposed on different generations under existing policies, revealing that future generations faced significantly higher fiscal pressures compared to current ones. The authors urged policymakers to address these imbalances to ensure intergenerational equity. Their work also demonstrated how the methodology could analyze policy impacts, prioritizing long-term sustainability over short-term measures.^[25]

Auerbach co-edited Generational Accounting around the World, a seminal work published in 2007 by the University of Chicago Press. The work explored the global application of generational accounting in assessing fiscal sustainability. The book featured analyses from 23 nations.^[26]

Public policy work

Beyond academia, Auerbach has significantly impacted public policy, including serving in public policy roles related to his work on taxation, fiscal policy, and macroeconomics. He was a member of the advisory committee for the Bureau of Economic Analysis in the Department of Commerce from 2000 to 2024.^[27] He also served as deputy chief of staff for the Joint Committee on Taxation in 1992.^[27][1] He also served as a member on the Panel of Economic Advisers for U.S. Congressional Budget Office from 1998 to 2002, and again from 2014 until present day.

Social security

Auerbach, has made notable contributions to public finance policy debates in the US, including social security. From his 1983 paper with coauthors, the Auerbach and colleagues investigated the empirical evidence on the effect of social security on national savings in the US. They find empirical results cannot be predicted with consumption-savings models and therefore confound a strong understanding of the impacts.^[28] Auerbach believes social security needs improvements to its fiscal sustainability. During President Bush's attempt to privatize parts of social security, Auerbach stated that this could not be done without increased tax revenue to support the system or a decrease in offered benefits.^[27] More recently, in 2025, he identified the interacting issues of the rising US deficit, social security funding, and inflation. He identified that inflation will reduce real benefits to social security recipients due to nominal tax rates which lag behind inflation, and the expansion of general revenue to fund social security.^[29]

Wealth tax and inequality

Auerbach's research diverges from the work of other public economists, such as Thomas Picketty. He disagrees with the methodology used by French economists Picketty, Saez and Zucman to measure wealth and income over time, arguing that the measure of both before taxation and transfers fails to capture other drivers of inequality.^[30] He also disagrees with measurement choices on the return on capital. Fundamentally, Auerbach does not believe a wealth tax as policy will effectively reduce inequality, due to the forced inter-temporal distortion it will create, and its inability to tax all components of an asset.^[31]

Fellowships and honors

Fellowships

• Fellow of the American Academy of Arts and Sciences^[32]
• Fellow of the Econometric Society
• Distinguished Fellow of the American Economic Association
• Fellow of the National Academy of Social Insurance^[33]

Honors

• Order of the Rising Sun (2021)^[7][34]
• The Daniel M. Holland Medal (2011)^[35][36]
• David A. Wells Prize, Harvard (1978–79) ^[b]

Selected publications

Books

• Auerbach, A.J., and Kotlikoff, L.J. 1987. Dynamic fiscal policy. Cambridge University Press.
• Handbook of Public Economics, 1987. Elsevier Science Limited. ISBN 9780444876676.
• Auerbach, A.J. and Kotlikoff, L.J., 1998. Macroeconomics: An Integrated Approach. MIT Press. ISBN 9780262511032.
• Taxing Corporate Income in the 21st Century, 2007. Cambridge University Press. ISBN 9780521870221.
• Auerbach, Alan J., Kotlikoff, Laurence J., & Leibfritz, Willi (eds.). (2007). Generational Accounting around the World. University of Chicago Press.

Articles

• Auerbach, A.J., 1979. Wealth maximization and the cost of capital. The Quarterly Journal of Economics, 93(3), pp. 433–446. doi:10.2307/1883167
• Auerbach, Alan J. “Taxation, Corporate Financial Policy and the Cost of Capital.” Journal of Economic Literature, vol. 21, no. 3, 1983, pp. 905–40.
• Auerbach, A.J., Gokhale, J. and Kotlikoff, L.J., 1991. Generational accounts: A meaningful alternative to deficit accounting. Tax policy and the economy, 5, pp. 55–110. doi:10.1086/tpe.5.20061801
• Auerbach, A.J., Gokhale, J. and Kotlikoff, L.J., 1994. Generational accounting: A meaningful way to evaluate fiscal policy. Journal of Economic Perspectives, 8(1), pp. 73–94.
• Auerbach, A.J. and Slemrod, J., 1997. The economic effects of the Tax Reform Act of 1986. Journal of Economic Literature, 35(2), pp. 589–632. JSTOR 2729788
• Auerbach, A.J. and Feenberg, D., 2000. The significance of federal taxes as automatic stabilizers. Journal of Economic Perspectives, 14(3), pp. 37–56. doi:10.1257/jep.14.3.37
• Altig, D., Auerbach, A.J., Kotlikoff, L.J., Smetters, K.A. and Walliser, J., 2001. Simulating fundamental tax reform in the United States. American Economic Review, 91(3), pp. 574–595. doi:10.1257/aer.91.3.574
• Auerbach, A.J. and Gorodnichenko, Y., 2012. Measuring the output responses to fiscal policy. American Economic Journal: Economic Policy, 4(2), pp. 1–27. doi:10.1257/pol.4.2.1
• Auerbach, A. J. and Gorodnichenko, Y. "Fiscal multipliers in recession and expansion," in Alberto Alesina and Francesco Giavazzi (eds.), Fiscal Policy after the Financial Crisis, University of Chicago Press, 2013, pp. 63–98. ISBN 978-0-226-01844-7.
• Auerbach, A.J. and Gorodnichenko, Y., 2013. Output spillovers from fiscal policy. American Economic Review, 103(3), pp. 141–146. doi:10.1257/aer.103.3.141

References

1.  "Alan Auerbach". Berkeley Economics. Retrieved 3 September 2017.
2.  https://eml.berkeley.edu/%7Eauerbach/cv.pdf ^{[bare URL PDF]}
3.  "Alan Auerbach | Interview | Richmond Fed". www.richmondfed.org. Retrieved 2025-09-03.
4.  "Alan J. Auerbach". NBER. Retrieved 2025-09-03.
5.  https://eml.berkeley.edu/%7Eauerbach/auerbach-bio.pdf ^{[bare URL PDF]}
6.  "Alan Auerbach". Institute for Fiscal Studies. Retrieved 2025-09-03.
7.  "Conferment Ceremony of Imperial Decoration for Professor Alan Jeffrey Auerbach". May 9, 2022. On Tuesday, May 3, Professor Alan Jeffrey Auerbach was presented the Order of the Rising Sun, Gold Rays with Neck Ribbon by Minister Daishiro Yamagiwa, Minister of State for Economic and Fiscal Policy, at the University of California, Berkeley.
8.  https://www.mofa.go.jp/files/100254456.pdf ^{[bare URL PDF]}
9.  "Alan Auerbach, Distinguished Fellow 2021". www.aeaweb.org. Retrieved 2025-09-03.
10.  "Alan Auerbach". Berkeley Law. Retrieved 3 September 2017.
11.  Auerbach, Alan J.; Gorodnichenko, Yuriy (May 2012). "Measuring the Output Responses to Fiscal Policy". American Economic Journal: Economic Policy. 4 (2): 1–27. doi:10.1257/pol.4.2.1. ISSN 1945-7731.
12.  Auerbach, Alan J.; Gorodnichenko, Yuriy (February 2012), "Fiscal Multipliers in Recession and Expansion", Fiscal Policy after the Financial Crisis, University of Chicago Press, pp. 63–98, retrieved 2025-09-03
13.  Walker, Ian; Auerbach, Alan J.; Kotlikoff, Laurence J. (September 1988). "Dynamic Fiscal Policy". The Economic Journal. 98 (392): 873. doi:10.2307/2233935. JSTOR 2233935.
14.  Auerbach, Alan J. (1997). "The Future of Fundamental Tax Reform". The American Economic Review. 87 (2): 143–146. ISSN 0002-8282. JSTOR 2950901.
15.  AUERBACH, ALAN J. “Demystifying the Destination-Based Cash-Flow Tax.” Brookings Papers on Economic Activity, 2017, pp. 409–32.
16.  "Revenue Implications of Destination-Based Cash-Flow Taxation". IMF. Retrieved 2024-12-25.
17.  "Identical Twins? Destination-Based Cash-Flow Taxes Versus Consumption Taxes with Payroll Subsidies". IMF. Retrieved 2024-12-26.
18.  Destination-Based Cash Flow Taxation WP 17/01
19.  Auerbach, A. J., & Devereux, M. P. (2018). Cash-flow taxes in an international setting. American Economic Journal: Economic Policy, 10(3), 69–94.
20.  Auerbach, Alan J.; Devereux, Michael P.; Keen, Michael; Vella, John (December 2017). "International tax planning under the destination-based cash flow tax". National Tax Journal. 70 (4): 783–802. doi:10.17310/ntj.2017.4.04. ISSN 0028-0283.
21.  Grinberg, Itai (2017-12-01). "A Destination-Based Cash Flow Tax Can be Structured to Comply with World Trade Organization Rules". National Tax Journal. 70 (4): 803–818. doi:10.17310/ntj.2017.4.05. ISSN 0028-0283.
22.  A Better Way: Our Vision for a Confident America
23.  Working Paper Series: Why should the world care? Analysis, mechanisms and spillovers of the destination based border adjusted tax. by Ursel Baumann, Alistair Dieppe, Allan Gloe Dizioli.
24.  Consumption-Based Taxation in an International Setting Testimony before the Tax Subcommittee of the Committee on Ways and Means, U.S. House of Representatives by Alan J. Auerbach, Robert D. Burch Professor of Economics and Law, Director, Burch Center for Tax Policy and Public Finance at the University of California, Berkeley. December 6, 2023
25.  Auerbach, Alan J; Gokhale, Jagadeesh; Kotlikoff, Laurence J (1994-02-01). "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy". Journal of Economic Perspectives. 8 (1): 73–94. doi:10.1257/jep.8.1.73. ISSN 0895-3309.
26.  Auerbach, Alan J.; Kotlikoff, Laurence J.; Leibfritz, Willi (eds.). Generational Accounting around the World. National Bureau of Economic Research Project Report. Chicago, IL: University of Chicago Press.
27.  "Alan Auerbach, UC Berkeley media experts list". newsarchive.berkeley.edu. Retrieved 2025-09-03.
28.  Auerbach, Alan J. and Kotlikoff, Laurence J. "An Examination of Empirical Tests of Social Security and Savings." In Social Policy Evaluation: An Economic Perspective, E. Helpman, Assaf Razin and EfraEfraim Sadka, pp. 161-179 . New York: Academic Press, (1983).
29.  conversableeconomist (2025-02-21). "Interview with Alan Auerbach: Federal Debt and Social Security - Conversable Economist". conversableeconomist.com. Retrieved 2025-09-03.
30.  Auerbach, Alan J. (2025-05-01). "Public Finance Implications of Economic Inequality". Journal of Economic Perspectives. 39 (2): 149–170. doi:10.1257/jep.20241421. ISSN 0895-3309.
31.  "Capital taxation in the 21st century". CEPR. 2015-03-03. Retrieved 2025-09-03.
32.  "Alan Auerbach". UC Berkeley Law. Retrieved 2024-12-19.
33.  "Alan J. Auerbach". The Hamilton Project. Retrieved 3 September 2017.
34.  Consulate General of Japan in San Francisco (May 9, 2022). "Conferment Ceremony of Imperial Decoration for Professor Alan Jeffrey Auerbach". Consulate General of Japan. Retrieved September 3, 2025.
35.  "NTA | Daniel M. Holland Medal". ntanet.org. Retrieved 2024-12-19.
36.  "Award Announcements". National Tax Journal. 75 (2): 437–444. 2022-06-01. doi:10.1086/719432. ISSN 0028-0283.

Footnotes

1.  Gold Rays with Neck Ribbon
2.  For his doctoral dissertation.

External links

• Appearances on C-SPAN

Portals:

•  Economics
•  Biography
•  United States

Authority control databases
International	ISNI VIAF GND WorldCat
National	United States Czech Republic Netherlands Latvia Greece Israel Belgium
Academics	CiNii ORCID Mathematics Genealogy Project MathSciNet
People	DDB
Other	IdRef Yale LUX