Posted on 02/15/2017 10:56:38 AM PST by TBP
Republicans in the House of Representatives are inadvertently setting a nasty political and economic trap for Donald Trump. Yes, it’s the Republicans, not the Democrats, who are ready to administer an unnecessary black eye to the new President. That’s not their intention, but it manifestly will be the result.
There has been virtually no debate or public discussion about this new, horrible tax.
The vehicle for this unwitting GOP punch is a new exaction called the border adjustability tax. This levy will cost American consumers at least a trillion dollars over the next ten years. Knowing how Washington politicians calculate these things, you can bet the amount will end up being considerably more. Prices for everyday items, such as socks, shoes and household appliances, will go up. So will tech devices like the iPad, not to mention automobiles and trucks. Gasoline? Millions of Americans will pay an additional 30 cents or more per gallon at the pump. Lower-income and struggling middle-class Americans will get hit the hardest.
Few people are even aware of what the Republicans are getting ready to hit them with. There has been virtually no debate or public discussion about this new, horrible tax, yet in one of those strange fits of collective, self-destructive behavior, numerous GOP lawmakers are ready to enact it.
Here’s how, in essence, this sneaky, anti-consumer tax works. Importers will no longer be allowed to deduct an item as a business expense. To simplify things, let's say a store imports a pair of sneakers for $40 and then sells them for $50, making a $10 profit on which it would owe taxes. Under the Republican plan, however, the retailer wouldn't be able to deduct the $40 it paid for the sneakers. In fact, it would owe taxes on the entire $50! And who, ultimately, pays this tax? You, the consumer, in the form of higher prices or fewer choices of where you can shop. Retailers and their customers will be hit.
Many oil refiners import crude oil to turn into gasoline. This new tax will sharply raise their costs, which will spell pain when you fill up your tank. Worse, some could be forced out of business or have to sharply curtail operations, as drivers cut back on buying the suddenly more expensive fuel.
Companies like BMW, Toyota, Mercedes, Honda, Nissan and Hyundai have major manufacturing operations in the U.S. that employ tens of thousands of workers in good-paying jobs. These companies’ costs will soar because they import numerous parts for the vehicles their workers assemble.
The Loophole of All Loopholes
But wait, it gets worse. Another feature of this bizarre GOP scheme gives exporters a gargantuan tax break by, in effect, not taxing their export revenues. Let's say a corporation sells a piece of machinery to Iran for $5 million, which cost only $4 million to produce. That means $1 million in taxable profit. Under the new Republican scheme, however, that $5 million received from the mullahs wouldn’t be taxable. Instead of a $1 million profit, the corporation, for tax purposes, would have a $4 million loss. Loophole doesn't begin to describe this "tax break."
No wonder companies like Boeing, GE and other big exporters are orgasming over this GOP "reform."
Big breaks for big companies, higher prices for beleaguered consumers. Why are the Republicans doing this? They say the revenue raised will help finance a huge tax cut, such as getting rid of the death tax and the horrific alternative minimum tax, cutting the corporate tax rate from its disastrous 35% to a highly stimulative 20% or less and very meaningfully lightening the tax burden on individuals. These are all extremely exciting ideas and would do wonders for the economy.
A VAT would crush future U.S. economic growth rates, just as it has in Europe and elsewhere.
But enacting a big, brand-new tax to finance cuts in old taxes is a dangerous business, especially in the way the Republicans are going about it. Democrats will gleefully remind voters why prices are going up, conveniently ignoring the tax cuts. Moreover, the GOP border adjustment tax is a but a small step away from a full-blown value added tax, which has financed the bloating of governments around the world. Democrats will someday be back in power, and they won't hesitate to either ramp up this GOP-created tax or go for the VAT. This would be hypocritical--rip apart the Republicans over this tax, and then go on to compound their felony. A VAT would crush future U.S. economic growth rates, just as it has in Europe and elsewhere.
Consider this astonishing fact: In the mid-1960s government spending in Europe as a proportion of their economies wasn't much different from our own. Growth rates matched or exceeded ours. Then Europe discovered the VAT. Spending ballooned and growth slowed to a crawl, consistently clocking in at significantly lower levels than Uncle Sam's.
Republicans also claim their new tax would help exports. In the real world it would do no such thing, as astute tax expert Dan Mitchell has explained (see this and this).
The GOP should drop this tax scheme. Why create unnecessary conflict and damage our new President? Republicans shouldn’t be constrained by the Congressional Budget Office's antiquated way of measuring the economic impact of changes in taxes. Drop the green eye shades, and go for big cuts that would turbo-charge the economy.
I’m not at this point against it...
They are proposing new taxes to get Mexico to pay for the wall, so the tax is on Mexico, not us.
No, the tax will always come back on the American consumer. Nobody else could pay it.
Big Labor? What?????? 90% of the USA’s manufacturing work force is not in a union. 90%.
The American consumer should pay more. We have the worst of all possible worlds. When you buy imported goods you are paying 3rd world labor rates and first world prices for management, engineering, marketing, HR etc. etc. etc.
No, the tax is for the Mexicans to pay for the wall.
Trump is not going to raise taxes.
We are looking at the same thing from two different angles.
If big unions and business are in cahoots, what does it benefit the unions to offshore US jobs? The unions have been bitterly complaining about NAFTA, GATT, the TPP, etc., which have all be strongly backed by business.
Add to this that the big unions have had their teeth kicked in recently, as state after state creates right to work laws.
Granted, government regulation has become obscene, and that does markedly drive up costs, but president Trump is working hard to slash such regulations and make them harder to pass.
As far as exports go, how could exporting more goods possibly raise prices here? It would be self defeating for foreign countries to both subsidize their own businesses for export to the US *and* to have tariffs on US imports, which would cost them a fortune while hurting their importers.
Within the US, however, the increase in production by our exporters will provide lots of new jobs for Americans, and since foreign countries have limits to how much of our exports they can afford, the increased production in the US will cause prices of these things to fall.
We’ve done fine job-wise. yes, illegals are taking jobs from Americans. So punish the employers with jail time as well as a YUUGE fine and deport the illegals who are working illegally. Cut off ALL benefits of any kind to illegals.
Jail employers who hire illegals.
Cut off ALL benefits to illegals.
Increase ICE and the Border Patrol. Back them up with National Guard if need be.
Deport all illegals who are workign illegally or who are attempting to collect benefits.
Appoint more immigration magistrates so we can do teh job sooner.
Build a wall, a fence, a moat, a gator pit — just secure teh border.
Cut off all funds to sanctuary cities. if they persist, arrest some officials.
Require all aliens to register.
Make it impossible for illegals to live here.
Then if we NEED aliens to do certain things, set up a procedure whereby we can protect ourselves, but bring in only those we need as expeditiously as safety allows.
I’m in favor of all states going right to work.
We need to reduce regulations even more than President Trump will likely be able to — about 95 percent or so. The lighter the regulatory touch, the more dynamic the market and the loser the regulatory costs. That means lower prices — especially when combined with lower taxes. You could, if you wanted, even raise salaries and still cut prices.
If we impose tariff or “border adjustment” taxes, other countries will impose higher taxes (in one form or another) on our exports. They will make it harder for us to do business.
A tariff is a tax. A border adjustment fee is a tax.
And any time taxes are raised, you and I pay ofr it.
Any new tax will be paid by us, directly or indirectly.
A tariff only affects those who buy the product.
So, not all taxes affect everyone.
And if the wall is built it will save billions and pay for itself in other expenses not be charged to the taxpayer.
In theoiry.
In practice, they spread teh costs as widely as possible.
Suppose we increase the price of a foreign good with a tariff by 10 percent. Now the American company increases its price 5 percent, but is still below the foreign company’s price. Who’s paying?
The wall is a good idea. it doesn’t solve the problem by itself, and once you figure in the cost of it, I’m not sure how much money it saves us. But it keeps illegals from crossing.
He’s right, of course.
Part of the problem is that Bannon inexplicably has got behind the BAT as a way of delivering on Trump’s protectionist utterances during the campaign.
Horrible economics.
On that we are agreed.
It truly depends what is being imported and exported. For example, during the Chinese import boom during Bush, one of our most expensive imports was the steel shipping containers that contained other goods. At $30-$50,000 each minimum, they would be sent here, unloaded, but *not* returned to China.
In California there are still rusting mountains of those shipping containers. And yet these definitely counted in our massive trade deficits with China. And this paid for China’s boom in coal and steel production, that supported their huge boom in construction.
The US top exports are:
Machinery including computers: US$190.5 billion
Electrical machinery, equipment: $167.2 billion
Aircraft, spacecraft: $134.6 billion
Vehicles : $124.3 billion
Mineral fuels including oil: $94.7 billion
Optical, technical, medical apparatus: $82.0 billion
Plastics, plastic articles: $58.4 billion
Gems, precious metals: $57.8 billion
Pharmaceuticals: $47.1 billion
Organic chemicals: $33.9 billion
Looking at the list, a lot of these products are vital to the economies of other countries. So tariffs on their part may hurt them far more than they hurt us.
Horrible economics, as you said, but not surprising.
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