Monday, February 13, 2017

Tax Imports?

Some economists seem to suggest otherwise, but a tax on US imports would not represent “free money.”
Excerpt: House Republicans envision changing the corporate income tax to (1) provide for the immediate deduction of business outlays, and (2) “border adjust” the calculation, i.e., exempt export sales and disallow a deduction for (effectively tax) imports. They salivate at the prospect that this arrangement would generate a net increase in revenue for the US Treasury of some $1 trillion over the next 10 years, which could then be used to “pay for” a big cut in the corporate tax rate. But wait, wouldn’t the result of taxing imports be to push up consumer prices for Americans who buy vast quantities of imported goods at Walmart, Amazon, etc.? Such a result wouldn’t seem politically astute as consumers vote. It would also be out of synch with the goal of keeping the tax system economically neutral versus favoring certain types of transactions over others. Proponents of the border adjustment concept have come up with a clever argument, which is that the apparent subsidy for exports and penalty for imports would be offset by strengthening of the US dollar. The net result, supposedly, would be to leave all concerned in the same position except for the US Treasury - which would be a big winner. Count us as skeptical about this comforting conclusion, and it turns out that we have a good deal of company including Senator David Perdue, Veronique de Rugy, and Steve Forbes. The Trump administration is working on its own tax plan, which will be announced within a matter of weeks and according to the president will be “phenomenal.” Let’s hope this plan won’t include border adjustment, but the only clue for now is that he earlier referred to this feature as “too complicated."

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