Issues, Tax, Trade

Another Day, Another DC Crony Lobbying for Continued Protectionism

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It’s a day with a “Y” in it (check not your calendar – I’ve already checked mine). Which means in many places throughout $4-trillion-per-year Washington, D.C., there are recipients of massive cronyism – looking to keep their gravy trains a-rolling.

Image Credit: Mike Mozart CC by 2.0

They’d ordinarily take for granted that the cronyism would continue – and be looking to accelerate their respective locomotives. But the election of President Donald Trump offers We the Victims the first glimmer of hope in decades that a diminishment of this business-as-usual – may finally be in the offing.

Most of the time, this rent-seeking is done in the privacy of Congressional offices and secluded corners of very expensive bars and restaurants. But sometimes, the behest-ing is brazen – and done in public.

Like, say, at Congressional hearings. As will happen today – when the House Ways and Means convenes to discuss direly needed tax reform.

Our tax code is a disaster. A nightmare mess of thicketed code complexity – and ridiculously high rates. And it is filled to the rafters with asinine anti-incentives to economic activity and productivity.

Trump ran on streamlining and simplifying the tax code – and reducing substantially the rates. And in so doing – helping to bring gigs back to within our lovely confines. Something House Speaker Paul Ryan and many in his coterie have long dreamed of doing. After the 2016 Election Russia-free miracle – the time has arrived.

Of the very many dumbnesses in our current code, perhaps the dumbest of all is the tax attack on companies who set up shop inside our nation:

“(A)ssume that of the $4M X Co. spent to produce the inventory it sold during the year, $2M of that inventory was imported from overseas before ultimately being sold to U.S. consumers. That $2M would be deducted from taxable income as part of cost of goods sold in the above example, giving the corporation a $700,000 benefit ($2M * 35%).”

Now that’s titanically dumb. There are bunch of reasons millions of jobs have left the U.S. This “Made In America Tax” – is a huge one.

Speaker Ryan and Company realize this stupidity – and offer an end to it via a shift to the Border Adjustment Tax (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.”

Get that? It just-about-halves the corporate rate – from an-effective-38.9% to 20%. And then doesn’t apply it at all to companies that Make In America. Win-win.

Unless you’ve spent the last several decades erecting multi-billion-dollar global manufacturing empires – as brick-and-mortar Retailers like Walmart and Target have done. A perfectly understandable business model, to be sure – given that’s what our stupid tax code has long told them to do.

But there’s an old joke:

Patient: “Doctor, it hurts when I do this.”

Doctor: “Don’t do that.”

Our current Made In America Tax devastates domestic job creators. So we should stop doing it. But that doesn’t mean the Retailers will silently take an end to their cronyism. And if they have to lie a little to keep it – so be it.

Target CEO Says Border Adjustment Tax Would Be Detrimental to American Families

Except the non-partisan Tax Foundation belies the lies: “All told – per the non-partisan Tax Foundation – the Republican plan en toto cuts taxes $4,600-per-family-per-year.”

Oops. Target’s CEO – will be publicly demanding his continued protectionism at this morning’s aforementioned Ways and Means hearing. Almost assuredly asserting the same sorts of…anti-facts.

Bolstered by self-contradictory arguments like this:

“The countries that have ‘border-adjusted tax systems’ have Value Added Taxes (VATs), not BATs. Indeed, no country has ever border-adjusted its corporate tax. None. In other words, the committee is trying to sell a tax system that no one has ever implemented based of the false statement that this would just make us just like everyone else. Besides, it is not a good idea to follow in the footsteps of big-government nations such as France or failing governments such as Greece. Not every policy implemented abroad is worth emulating — border-adjusted tax systems certainly aren’t.”

So in adjacent sentences, we are told that 1) No one else does this – and 2) We shouldn’t do what everyone else is doing. If you’re confused – that’s only because the author seems to be.

And the author begrudgingly admits that every other nation does, in fact, greatly favor their domestic producers over foreign ones. That tax-preferential-emphasis Speaker Ryan and Company do indeed seek to emulate – and rightly so.

And the fact that what Speaker Ryan and Company propose is a BAT and not a VAT – is a very good thing. A feature – not a bug.

VATs are insidious, awful, multi-tiered, applied-again-and-again-all-along-the-manufacturing-way stealth taxes imposed on everything. That we never know are there – until we purchase the multi-times-government-taxed, greatly-price-inflated items on which they are imposed.

The BAT is a one-time tax – that is not applied at all to domestic products.

Not just apples and oranges – this is apples and bowling balls.

Look, the power to tax – is the power to destroy. We get that. It’s why we point to the decades-long destruction of domestic jobs – due to taxes.

But we need to tax something – in some fashion. Much better to do it in a way – that allows for gig creation, rather than mandates gig destruction.

So please – ignore the cronies seeking to protect their cronyism. Even (especially) when they unabashedly do it publicly.

On everything – up to and including the absurd anti-Made-In-America tax code.

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

    Is this saying that companies that import products should be taxed on sales and not on profits? What’s the difference between a border added tax and a tariff?

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