Issues, Tax, Trade

The Border Adjustment Tax: If You’re Right – You Don’t Have to Lie

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I like Bill Buckley, Frederic Bastiat, Milton Friedman and a whole host of other conservative luminaries.  But I am a conservative first and foremost – because I loathe lies and liars.  And Leftism – is a giant lie.

All the lies told by all of Leftism’s practitioners – are told in service of hiding the fact that the Big Idea behind all of it is hopelessly failed and fraudulent.  What is particularly annoying for a conservative – is when other conservatives do their best Left impersonations, and lie to advance a bad idea.

I speak of the very good idea that is the Border Adjustment Tax (BAT) – and the lies some conservatives are telling to try to stop it.

What is the BAT?: “Under (this) tax reform, this system would not tax the exports of American companies, but would tax the gross value of any imports into the country. The new rate of tax on corporations is expected to be 20 percent, so that would also be the de facto rate of tax on imports.

“U.S. companies would immediately be on equal footing with their international competitors, the great majority of whom benefit from territorial taxation and border adjustability today.  American firms would be further advantaged by tax reform’s low 20 percent tax rate on corporations (down from a global high 35 percent today), and full business expensing of asset purchases (replacing multi-year depreciation deductions).

“Instead of taxing exports and not imports, we’d be taxing imports and not exports. Instead of reading about corporate inversions and outsourcing, we’d be reading about jobs and firms moving into the U.S. to take advantage of the favorable tax rules here.”

A strong, sensible, conservative idea.  That several prominent conservative organizations and individuals are opposing.  And to advance their opposition to the BAT – they are serially lying about it.

House Republicans propose the BAT – as a part of their complete tax code overhaul.  All the different pieces work together – and we end up with much lower rates and a much simpler code.

Conservatives opposing the BAT – are pulling it piecemeal out of the overall reform package, and pretending it will be imposed all by its onesies.  As if it is a stand-alone new 20% tax.

As opposed to what it actually is – a nearly 50% cut to the current corporate tax rate.  And a part of the elimination of a whole host of other taxes.  About which conservative Americans for Tax Reform President Grover Norquist – told the truth on CNBC: “(W)hat you’re looking at is we’re going to take the corporate rate to 20, we’re going to do full expensing, get rid of the death tax, the AMT, cut the capital gains tax.  These things are all consensus issues. The whole package fits together.  In it, is border adjustable.”

That’s a whole lot of tax eliminations – in addition to a giant rate cut.  The non-partisan Tax Foundation calculates the net cut of the entire reform package – is $4,600 per family per year.

But not all conservatives are being as honest about the BAT as is Norquist.  They dishonestly pretend the BAT will be imposed alone – to then allow them to tell other lies: “The Club for Growth has begun an advertising campaign…(saying) that the border adjustments proposal would increase an average family’s annual expenditures by about $1,700.”

Again, all by its onesies it would.  But no one is proposing it be imposed all by its onesies.  And it ain’t just Club for Growth slinging this bull.

There’s Americans for Prosperity: “We are against this approach because in the end, it is making life more expensive for all Americans, especially low and fixed-income families.”

And Koch Industries (of Koch Brothers fame): ““[The Border Adjustment Tax is] just a tax that’s going to be passed on to people who shouldn’t be taxed…(we should) not pass on a huge new burden to consumers.”

And Forbes media mogul Steve Forbes: “(T)he BAT will inflict American working families – the very people critical for Donald Trump’s election – a whole lot of hurt….”

Image Credit: Gage Skidmore CC by SA 2.0

And economist Larry Kudlow: “I am completely unconvinced about a Border Adjustability Tax…where we’re going to tax imports, which is going to blow the middle class, you know, Walmart shoppers and so forth….”

Aha – and there’s the magic word: Walmart.  One of the hugest of the nation’s huge brick-and-mortar Retailers.  The Retailers are a monstrous lobbying contingent – whose BAT position I understand, even as I loathe the dishonest attempts to block it.

Our tax code has spent the last several decades incentivizing Retailers and other manufacturers – to leave the United States and manufacture any and everywhere else: “(T)he current tax system and its burdensome 35% rate encourages corporations to flee the U.S. in search of lower taxes. The system, it could be argued, further encourages such behavior by providing a tax deduction for imported goods….

“If there’s one thing we’re sure of, it’s this: we no longer want to incentivize imports and discourage exports; as is, it’s presumed we’ve got a $5 TRILLION trade imbalance, meaning over a ten-year window, we import $5T more in product than we export. That ain’t good.”

No it ain’t.  The BAT addresses both problems – it lowers the rate, and flips the incentive to domestic production.

The Retailers have spent decades building a massive international production network – just as our tax code perversely told them to do.  Millions of jobs poured out of our country as a result – but the Retailers don’t care about that so much as they care about protecting their tax breaks for their international production network.

But government policy must do the most good for the most people.  Much lower prices for every American, and an avalanche return of millions of domestic production jobs for Americans to take – trumps the corporate profits of the Retailers.

So the House Republicans’ tax reform package – in its entirety, including the BAT – should become the new law of the land.

Again, Retailers opposing the BAT – is understandable.

Conservatives opposing it – and telling multiple lies about it to try to stop it – isn’t understandable at all.

This is a guest post by Seton Motley Founder and President of Less Government

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