On June 24, 2016, Speaker Ryan released the Tax Reform Task Force Blueprint, or the Better Way tax reform. For the individual income tax, the plan would broaden the base, lower the rates, and alter some of the elements related to family size and structure. For business income, the current income tax would be replaced by a cash-flow tax rebated on exports and imposed on imports, with a top rate of 20% for corporations and 25% for individuals. The proposal would also repeal estate and gift taxes. A recent announcement by congressional and administration leaders indicated that border tax adjustments would be dropped from future tax plans. These provisions were enacted in the Affordable Care Act (ACA). The Better Way proposal does not address these taxes but indicates that all taxes imposed by the ACA will be repealed in different task force proposals. The most important deduction eliminated is the state and local taxes (income, sales, and property) deduction. This treatment would convert the income tax to a cash-flow tax and impose a zero effective marginal tax rate on investment (and a negative tax rate on research investment). Eliminating the border tax adjustment would make the tax a cash-flow tax imposed on production rather than consumption. The U.S. tax system would be territorial in the sense that no tax would be imposed on foreign-source income of U.S. firms by virtue of its being foreign source (i.e., producing abroad for the non-U.S. market). Labor supply is affected by income and substitution effects. In addition, note that the incentive for charitable contributions will also be reduced through repeal of the estate and gift tax. Effects on Investment and Saving

In several respects the proposal will likely lead to efficiency gains in the allocation of capital, by type and by form (equity or debt). These effects are demand-side effects. Firms with losses will not be able to benefit from the export subsidy and to the extent that the subsidy does not have a value, it will cause the border tax adjustment to act partially as a tariff (and thus discourage imports). The destination basis would also eliminate the incentive for firms to invert (shift their headquarters to another country), which may require a tax induced merger. Both analyses, however, show a general pattern of favoring higher-income individuals, probably largely because of the reductions in business and corporate taxes. The Tax Foundation also provides a distributional analysis after the growth effects are incorporated with much larger and more even benefits. Tax Treatment of Families of Different Size and Composition

To examine the first horizontal equity issue, the effective tax rates arising from current and proposed structural elements of the tax system are compared across family types. Penalties can arise at low-income levels because of phase outs, particularly in the earned income credit. As in the case of the basic horizontal equity issues, the structural elements are not that different from current law, with larger standard deductions offsetting the loss of itemized deductions, the new child and dependent credit largely replacing the personal exemption, and the limits on itemized deductions offsetting the flattening of the rate structure. New Tax Planning Possibilities with a Border Adjustment

An example of the potential type of tax planning that might occur centers around the exemption of the export of intangibles combined with a territorial tax system. Consequences for International Agreements: The WTO and Bilateral Tax Treaties with a Border Adjustment

The blueprint's border adjustments may be found to be illegal tariffs and export subsidies by the World Trade Organization (WTO). Individual income taxes (outside of pass-through income) would be less radically changed, although the significant reduction in the number of itemizers could have revenue consequences for the states. The analysis yields a percentage change in output dQ/Q, which is a function of the changes in the tax rate on capital income, the average tax rate on labor income and the marginal tax rate on labor income:
dQQ=αS+ES-EI(1- α) Vdt1-t+EIdta(1-ta)-EStm(1-tm)
where α is the share or capital income 
V=ER (R1-t)/(SR1-t+ER R1-t+d)
Because this model applies to small changes, to get a better approximation of discrete changes, the initial tax rate is set at the midpoint of the old and new tax rates.
On June 24, 2016, House Speaker Paul Ryan released the Better Way Tax Reform Task Force Blueprint, which provides a revision of federal income taxes. For the individual income tax, the plan would broaden the base, lower the rates (with a top rate of 33%), and alter some of the elements related to family size and structure by eliminating personal exemptions, allowing a larger standard deduction, and adding a dependent credit. For business income, the current income tax would be replaced by a cash-flow tax rebated on exports and imposed on imports, with a top rate of 20% for corporations and 25% for individuals. The cash-flow tax would be border-adjusted (imports taxed and exports excluded), making domestic consumption the tax base, although a recent announcement from congressional leaders has indicated that a border adjustment would be dropped in any future tax plan. The system would also move to a territorial tax in which foreign source income (except for easily abused income) would not be taxed. In addition, the proposal would repeal estate and gift taxes. Although the Affordable Care Act (ACA) taxes are not repealed in the Better Way tax reform proposal, ACA taxes are repealed in the Healthcare Task Force proposals.
One objective of tax reform is to increase output and efficiency. However, the plan's estimated output effects appear to be limited in size and possibly negative. The direct effect of lower marginal tax rates on labor supply is limited because the reduction in marginal tax rates is small and largely offset by an increased base that increases effective marginal rates. Capital income effects are also somewhat limited even with the movement to a cash-flow tax (that generally imposes a zero rate) because the current effective tax rate is low, due to current accelerated depreciation and the negative tax rate on debt financed investment. Growth effects are also limited because most empirical evidence does not support large savings and labor supply responses. As currently proposed, the plan loses significant revenue which, according to some estimates, could more than offset the supply responses and eventually lead to a contraction in output.
The plan would achieve efficiency gains, particularly in the allocation of capital by type and industry and in the even treatment of debt and equity finance. It would eliminate many distortions associated with multinational firms, including eliminating the tax treatment that discourages repatriation of foreign source income to the United States and the incentive for firms to invert (shift headquarters abroad) by merging.
Although claims have been made that the border adjustment would penalize imports and favor exports, a true border-adjusted tax has no effect on imports and exports due to the dollar's appreciation. There may be transitory effects, and for the blueprint, the export exemption may not be received by all exporters, which could cause the plan to act in part as a tariff. There are, however, a number of methods that might be used to obtain the benefits of the export exemption.
Studies of the distributional effects indicate that the plan increases the after-tax income of higher-income individuals compared with lower-income individuals. The plan's treatment of families of different compositions remains similar to current law, with families with children favored at low incomes and disfavored at high incomes.
The plan would simplify the tax system's administration and compliance by reducing the number of itemizers, eliminating the estate tax, simplifying depreciation, and eliminating the need for most international tax planning to shift profits out of the United States. However, some new complications would be introduced, including separating favored capital income of pass-through businesses from labor income of their owner-operators and implementing border-tax adjustments.
Other concerns about the tax reform are that the border adjustment will be found illegal by the World Trade Organization and violate bilateral tax treaties. Major changes in business taxes may also complicate the tax administration of state and local governments.