CASH-FLOW TAXATION OF FINANCIAL SERVICES

Introduction of a consumption-based tax in the United States will requ ire finding a method for taxing financial intermediation services. Thi s paper describes the ''cash-flow'' method of taxation and its applica tion to financial services companies. The cash-flow method is used to tax certain financial companies in the Unlimited Savings Allowance (US A) bill introduced by Senators Nunn and Domenici. Tax liability estima tes under the USA cash-flow tax are presented for a sample of banks, i nsurance companies, and securities brokers. These results indicate tha t the financial sector would likely enjoy a substantial tax cut under the USA tax.