Winners and Losers
On Thursday, President Trump threw his conditional support behind a border adjustment tax, giving a boost to the centerpiece of a tax overhaul championed by House Speaker Paul Ryan. "It could lead to a lot more jobs in the United States," Trump told Reuters. White House Press Secretary Sean Spicer also spoke approvingly of the proposal, which would get rid of corporate taxes on exports and tax imports at a 20 percent rate, pitching it as a way to create jobs. The proposal has split Big Business, and several Republican senators are opposed, meaning it faces an uphill battle. "If Trump supports it, that makes it considerably more likely," Harvard Business School professor Mihir Desai told Reuters.
Like all big tax changes, this one creates winners and losers. But it's not clear exactly how much the losers would lose and the winners would win. As Andrew McGill explains at The Atlantic, a lot depends on how quickly the U.S. dollar strengthens in response, theoretically lessening the blow to consumers. "Economists differ on the particulars of the border adjustment tax," he writes. "Some people like it, and some don't. Every expert I spoke with agreed on one point, however: If Trump is looking to make new jobs, this isn't the way to do it."
The sharpest hit for U.S. consumers is expected to be on clothes and shoes, at least in the short term, but gas prices are widely expected to rise, too. The American Petroleum Institute and the American Fuel and Petrochemical Manufacturers, oil industry business groups whose members are divided over the tax, have concluded internally that a border adjustment tax would raise U.S. gas prices by at least 20 cents a gallon, The Wall Street Journal reports. Barclays PLC estimated in January that a border adjustment tax could add $400 a year to a family's gasoline bill. The tax "really is going to increase domestic crude prices at the benefit of domestic producers, to the detriment of the consumer," Marathon Petroleum CEO Gary Heminger told investors earlier this month. Without the tax, though, Ryan's tax overhaul plan falls apart.