Let’s Ditch the Border Adjustment Tax Plan

Barron's ^ | February 25, 2017 | GENE EPSTEIN

[reaganaut1]

If you like complexity in the federal tax code, you’ll undoubtedly love the proposed border adjustment tax. The BAT should also appeal to wonkish types whose idea of fun is puzzling through the impact of a major tax change. Dissenters will include tax simplifiers, and those who object to the uncertainty and disruption that the BAT surely will bring to an economy that badly needs a break from disruption and uncertainty.

The House Republican tax plan would cut the top rate on corporate profits to 20% from 35%. Having proposed a decrease to 22%, I can hardly object to a difference of two percentage points, and so I give the 20% proposal a thumbs-up. While most tax cuts involve a loss of revenue, a reduction in the tax on corporate profits is likely to be revenue-neutral (see “Cut the Top U.S. Corporate Tax Rate to 22%,” Nov. 26, 2016), and it should boost economic growth.

But the corporate tax cut would include a special kicker in the form of the border adjustment tax. The BAT would deny corporations the ability to deduct the cost of imports from their taxable income, while all income earned from exports would be exempt from the new levy. This would mean that companies selling imports in the domestic market would be taxed on the full proceeds of the sale—not just on the profit earned—which could more than offset the gains from the tax reduction. At the same time, the tax would be zero on the sale of exports.

The value of the transactions that would be affected by the border adjustment tax is huge.

[reaganaut1]

It is strange to tax companies on fictional profits that ignore the costs of the goods they have imported. A border adjustment tax will raise prices for American consumers.

[dila813]

I am more in favor of verification of work authorization, that’s the border tax I am in favor of.

[9YearLurker]

WHere did this monstrosity even start? Do we know what think tank or lobbyists are responsible for it?

[Kozy]

Believe EU has this form of tax on imports.

[Gaffer]

I’m tired of so-called experts misnaming and mischaracterizing import/export issues under the catch-all Border Tax meme.

It is highly disingenuous and only intended to draw readers and clickers under the guise of some illegal immigration question. It is not. Stop it.

[central_va]

I am for it.

The whole purpose of the BAT(and a tariff) is to raise prices of imported goods. That is a good thing. The result of which will stimulate domestic production and competitions. The BAT will also be a foil to use against those leftist wrongly claiming that personal income tax rate reductions have "to be paid for". Well here is how we pay for it. WIN - WIN.

[Logical me]

Not good enough corporate profits to 20% from 35%, President Trump is right to go to 15%.

[babygene]

I’m not sure that I agree... I think it may be fine.

[9YearLurker]

I see that an economist named Alan Auerbach at Berkeley is credited with pushing it the most. Then the House GOP put it in their plan in June, 2016.

Curiously and maybe coincidentally, he and Kevin Hassett, Trump’s planned chair of the CEA, coauthored a discussion of Picketty’s work when it was big a couple of years ago.

[momincombatboots]

Simple and close enough to perfect.

[Brad from Tennessee]

Mexico has a 16% value-added tax U.S. companies must pay on their exports into Mexico. There's no corresponding tax on the Mexican exports into the U.S.