We Must Tax Imports and Exports Equally
The January 11, 2017 issue of the Mesquite Local News posted a letter to the editor where I laid out what a Border Adjustable Tax (BAT) is, how, in practice, it is used against America by our trading partners and why we need to implement a response to this international standard practice.
In this piece, I hope to provide a macro view of the subject and the likely inclusion of such a method in upcoming tax reform.
We all pay needed taxes via production or consumption. The rest of the Organization of Economic Cooperation and Development (OECD) nations – our trading partners, use their Value-Added Tax (VAT) as an import tariff as explained in the January 11th article. Thus, they rely more on consumption taxes and we rely more on production taxes.
Those proposing a Border Adjustable Tax say that if we shift some taxes off production and onto consumption, we will get more American production jobs and economic growth while keeping the tax system revenue neutral. This is how all of our trading partners create trade surpluses and why the U.S. racks up deficits. Failing to adjust for this disparity leaves America at a distinct disadvantage. The bottom line is, no matter how the government collects taxes, we all pay them. Collecting taxes on consumption treats imports and exports equally. The current method incentivizes imports at the expense of exports and American jobs. Adding a BAT not only improves US competitiveness and creates American jobs, but it balances trade, mitigating the trade deficit and budget shortfalls.
One dollar reduction on production taxes can be offset by a little more than fifty cents in consumption taxes because imports are included in consumption taxes. The Trump administration floated with the public the idea of a reduction on corporate (production) taxes from 35% to 15% and a BAT of 20% to pay for it. This was intended to be a beginning negotiating position. The likely outcome will probably look more like a 15 point corporate tax reduction and a BAT around 8% which will be more palatable with retailers and the public.
Most of the existing plans in the House of Representatives have BAT rates in the 6-9% range. In the next few months, Congress and the public should come to understand this issue more and should gain support. There are, and always will be, pundits and politicians who oppose this approach but reasonable people will prevail and longer-term debt reduction will be included in tax reform. The BAT is the fiscal element to balancing budgets and eventual debt reduction.
The BAT is a primary key to Trump’s pathway to prosperity by creating jobs and paying down debt. This is the most important issue before the American people. Without it, deficit spending will continue. With it, new revenues will come in from imports, go to deficit reduction and might even reduce our $20 trillion national debt somewhat.