YES FROM EXPERTS IN THE FIELD
NO FROM EXPERTS IN THE FIELD
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WHAT DO YOU THINK?
Is a border adjustment tax
a good idea?
(on Twitter @william
gale2) is the Arjay
and Frances Miller
Chair in Federal
at the Brookings
co-director of the
Tax Policy Center.
is the senior vice
president for government relations
at the National
THE NEW Republican tax proposal would convert the corporate income tax to
a variant of a consumption tax, like the value-added taxes present in ;;; countries, but also with a deduction for employee compensation. Unlike the current
corporate income tax, the proposed tax would not discourage investment, hurt
workers or encourage excessive debt. But it would eliminate firms’ growing ability
to game the international tax system.
Border adjustment is a logical part of a consumption tax. It exempts exports,
since they are not consumed here, and it taxes imports, which are consumed
here. Actually, you see border adjustment all the time, but you may not realize
it. For example, Maryland has a sales tax. Delaware does not. A product made
in Maryland and sold in, or “exported” to, Delaware is not subject to Maryland
sales tax—exports are exempted. A product made in Delaware but “imported”
to Maryland is subject to Maryland sales tax—imports are taxed.
Claims that border adjustment will destroy the retail sector are wildly
exaggerated. All countries with value-added taxes provide border adjustments.
Why would they all do this if they were so harmful? Check out the retail sector
in Europe; it is doing fine.
Theory and evidence indicate that border adjustment will lead to the dollar
rising in value relative to other currencies to offset the tax. For example, a company that currently imports a product for ;;;; would have to pay a ;; percent
tax under the proposed tax, but the dollar would rise so that the imported good
would cost only ;;; on a pretax basis. Counting the ;; percent tax, the product
would still cost the importer ;;;;. This suggests that imports won’t change.
Similar reasoning implies that exports won’t either. As a result, contrary to
what both advocates and opponents are saying, border adjustment won’t have
a first-order effect on the trade deficit.
Border adjustment would not make sense in the current income-tax-based
system. But if we were to switch out the corporate income tax for a consumption
tax, border adjustment is not only logical, it’s appropriate and constructive. C
YOU MIGHT not have heard of the border adjustment tax (BAT), but this new
tax could be coming to your local retailers. And it would mean higher prices for
virtually everything you buy.
Some in Washington, D.C., want to use the BAT to raise ;;;; billion per year
to pay for cutting the federal corporate tax rate to ;; percent from the current
;; percent. It’s called border “adjustment” because the tax would be adjusted
depending on which way a product moves. It would be added to imported goods
but rebated to manufacturers of U.S. exports, meaning American consumers
would pay more so foreign consumers could pay less. Taxes would be due where
the product is consumed—a big change from the current tax code, which taxes
profits, not products.
The policy could benefit U.S. exporters, but consumers should be wary. For
decades, Americans have seen lower prices and better choices in consumer goods
thanks to the global supply chain. We have fresh fruits and vegetables regardless
of the season, and seafood from around the world. And American families save
billions of dollars a year because prices for commodities such as clothes, shoes,
electronics and even automobiles have risen much less quickly than costs like
education, health care and housing.
These savings and consumer choices are at risk under the BAT, which would
see costs for consumer products go up ;; to ;; percent immediately. That translates into ;; cents per gallon more for gasoline, ;; cents more for a latte with an
extra shot and ;;,;;; more in the sticker price of a Chevy or Toyota. Overall,
the National Retail Federation estimates the typical American family would
spend ;;,;;; annually on essentials like food, fuel, medicine and clothes to pay
Retailers are in agreement that tax reform can help create a stronger economy. We just don’t want to see consumers get border-adjusted into a bad deal
by Congress. C
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