Feb 02, 2017

Time to Scrap the Border Tax Idea

Post by Freedom Partners

Tax reform must be a critical part of getting our economy growing. And a plan being advanced by House Republicans has many excellent features that will do just that, including lowering the corporate tax rate to 20 percent.

But there is one provision in the GOP plan that’s bad for the economy and bad for American consumers.  It’s called “border adjustment,” and here’s how it works.

Under border adjustment, companies that import goods will no longer be allowed to deduct those expenses from their taxable income—under the new proposed rate, this would effectively place a 20 percent tax on all imports. The provision is projected to cost importers more than $1 trillion over the first 10 years. As companies face higher business costs, they will shift the burden to consumers, driving up prices on everything from apparel to electronics to gasoline.

In fact, Coach CEO Victor Luis acknowledged on CNBC that everyday goods sought by consumers will become more expensive.

“If we see this border adjustment in an economy where 70 percent of GDP is driven by consumption that is driven on imports, any border tax will lead to higher prices for the consumer … That’s just a reality that we’ll have to face if it comes to that.”

All sectors of the economy would be affected by this tax, but consumers would be hit especially hard at the pump. CNBC also reports that Jeff Currie from Goldman Sachs is forecasting higher costs for drivers. Just like in the retail sector, gasoline companies would shift the new tax to consumers at the pumps.

“You do end up with higher gasoline prices. So the question, who’s ultimately going to pay for this tax, it’s going to end up being U.S. consumers.”

Our economy has become the largest and most prosperous in human history because it is built on the unrestricted exchange of goods and services in the free market. With wages growing slower than before the recession, an import tax would be further devastating to many Americans still struggling amidst a slow-growing economy.

Congressional leaders need to scrap this provision and stop the more than trillion-dollar tax hike on consumers. Shifting that kind of burden from corporations to consumers is bad politics and worse policy.