The House GOP's very bad tax idea
The House Republicans' proposed border adjustment tax sets a "nasty political and economic trap for Donald Trump," as Forbes writes:
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.
The border adjustment tax would tax imports at 20 percent while exempting exports. House Republicans think the revenue from the proposed border tax could finance cuts in the corporate tax rate and other taxes, as well as encourage domestic manufacturing.
But the Republicans would be opening a huge can of worms. As Forbes points out, prices for all manner of imports, from clothing to computers, from gasoline to cars, would escalate substantially. As Forbes also notes, the costs for foreign automobile companies manufacturing in the U.S. "will soar because they import numerous parts for the vehicles their workers assemble."
The policy wonks imagine that a resulting stronger dollar would offset part of the tax, but good luck getting in the weeds on that one.
Further burdening manufacturers and their tax accountants is the fact that many products, including cars and appliances, go back and forth from one country to another during different stages of parts acquisition, assembly, and final manufacturing. This means more opportunities for bureaucratic meddling to enforce the new tax.
Aside from creating price inflation with a brand-new tax that would hit lower-income Americans the hardest, which the Democrats will rightfully blame on the Republicans, the proposed border adjustment tax is a slippery slope to a new and dangerous form of taxation for Americans, as Forbes observes:
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.
Forbes further observes that European growth rates were once as strong as 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.
The value-added tax is an insidious form of taxation that enables governments to bury tax increases in the price of goods to the consumer. In short, it's a perfect tax for Democrats.
Trump campaign economic adviser Larry Kudlow says estimates that the border adjustment tax would raise $1 trillion are "nonsense" and "voodoo economics." Kudlow doesn't mince words:
It's a lousy reason to make tax policy, in this case stopping imports, subsidizing exports, on the basis of what I'm going to call [a] phony scorecard revenue issue.
The way to make policy: is it good for growth? Does it create new incentives? Will it help people, companies large and small, minimum income wage earners[?]
… This is the kind of thing that could doom business tax reform, which in my opinion is the most important pro-growth element and really the heart of President-elect Donald Trump's plan for economic growth and jobs.
… There's a problem that exists, but this isn't the right solution, and I don't want a national value-added tax. I don't want a national sales tax.
Paul Ryan and company should drop the border adjustment tax and lay out a straightforward high-growth tax reduction plan. As Forbes writes, "[d]rop the green eye shades, and go for big cuts that would turbo-charge the economy."
A top-level delegation of Trump transition people discussed the border adjustment tax with Paul Ryan on Monday, but it seems that Mr. Trump already knew the answer.
The president-elect indicated last Friday that he has the right instinct on the border adjustment tax, saying the plan is "too complicated" and would result in our being "adjusted into a bad deal" and that "[a]nytime I hear border adjustment, I don't love it[.]"
Fortunately, Mr. Trump and his team may save the Republicans from themselves and their tax masterminds.
The bigger point, however, is, how could the House Republicans be so obtuse?