Analysis

The battle over the border tax

Businesses are deeply split over a proposal to put a 20 percent tax on imports coming into the U.S.

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Corporate America almost uniformly craves tax reform. But businesses are deeply split over whether to support the "centerpiece of the Republican tax overhaul effort," said Nicholas Confessore and Alan Rappeport at The New York Times. House Speaker Paul Ryan has proposed a "border adjustment tax" that would put a 20 percent tax on imports coming into the U.S. "In theory, this would buttress domestic manufacturing and make American products more competitive with foreign goods." The revenues generated by the tax — as much as $1 trillion over the next decade — would also make possible the Republican dream of lowering the corporate tax rate without adding to the federal budget deficit. Major U.S. manufacturers like Boeing and Caterpillar are behind the idea. But retailers like Target and Ikea, as well as other companies that import most of their goods, are lobbying furiously against it. So are several deep-pocketed conservative groups, including the political network backed by billionaire businessmen Charles and David Koch, who see it as anti–free trade.

"Imposing a 20 percent tax on imports would have a chilling effect on job creation and the budgets of working families," said Judson Phillips at the Washington Examiner. Not only would it drive up costs for small retailers and manufacturers that rely on imports but also "the cost of big-ticket items like cars, electronics, and appliances would all rise." The National Retail Federation estimates that the average American family will pay $1,700 more per year in higher prices on goods. It's also never smart to anger retailers, said Dylan Matthews and Matthew Yglesias at Vox. Republican Sen. Tom Cotton of Arkansas, whose state is home to Walmart headquarters, is a "vocal opponent" of the border tax and gearing up for a fight. Consider also that manufacturers typically have to entice only executives to buy their products, while retailers "are extremely good at selling stuff" directly to the public. "Which do you think is going to be better equipped to persuade voters to call their senators and representatives about the border-adjusted tax?"

"Just saying 'no' to the border adjustment tax will not work," said Derek Scissors at The Hill. Everyone agrees that our corporate tax code needs "profound change." A border tax would allow us to meaningfully lower the corporate tax rate from the current 35 percent without blowing up the deficit, and encourage companies "to locate and hire in the U.S." It also puts the U.S. on more even footing with countries that impose value-added taxes on American goods. So opponents "need to do more than object; they should offer a replacement." We can debate the border tax all we like, but it's dead on arrival, said Peter Coy at Bloomberg. The opposition to it is just too powerful and united. And without the added revenue, Republicans are going to have to settle for much smaller tax cuts. So instead of the 15 percent corporate tax rate President Trump has promised, companies might face something more like 28 percent — "the same corporate rate that President Obama sought." Trump desperately wants a major legislative win after the health-care debacle. But it looks as if whatever he manages to get done on taxes "is likely to be small-bore."

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