“[O]n life support,” says US Senator John Cornyn (R-TX)of the “Border Adjustment Tax,” proposed during last year’s GOP presidential primaries by US Senator Ted Cruz (R-TX) and backed by Speaker of the House Paul Ryan (R-WI). If the idea is indeed dead, American workers and consumers should heave a sigh of relief. It’s a very bad idea, in more ways than one.
The BAT is promoted as a “tax on imports.” Which, I guess, is technically accurate, but doesn’t tell the whole story. It’s not just a tax on imports. It’s a tax on people who buy the imports. That is, it’s a tax on you.
For obvious reasons, retail merchants don’t like the idea very much. It would force them to raise prices on lots of items. Which is the same reason you shouldn’t like it, unless you like paying more for stuff than you pay now.
For equally obvious reasons, some American manufacturers love the Border Adjustment Tax. Every extra dollar you have to pay in tax for something made abroad is a dollar they don’t have to find ways to cut from their manufacturing costs to compete on price. For them it’s the equivalent of running a race in which their competitors have to carry backpacks full of lead and they don’t.
The politicians behind the idea love it because it would let them give their business cronies a huge tax cut — reducing the corporate tax rate from 35% to 20% — without reducing government spending.
Ultimately American consumers pay both types of taxes, of course, but the BAT would shift the burden to customers who buy goods made in China, Mexico, South Korea, Pakistan and so on, hurting retailers who sell those things in order to subsidize American manufacturers at everyone else’s expense.
All this talk of “tax reform” is just smoke and mirrors, a way of disguising the reality that every dollar government spends has to come from somewhere, and that that somewhere is taxation. Borrowing money is just promising to tax later. Inflating the currency is just a hidden tax.
Shifting the tax burden around with tricks like a “Border Adjustment Tax” isn’t real reform, it’s just rearranging the deck chairs on the Titanic. The first step in any meaningful reform is for Congress to commit to spending no more money than it takes in. The second is for it to start taking in less.