Opinion
Ryan promises to replace Obamacare 'this
year,' but implementation could take longer
For weeks now, House Speaker Paul Ryan (R-Wis.) has
struggled to convince his colleagues of the benefits of the border adjustment
tax. If his reasons seem unsound and unconservative (Why should the government
dictate which suppliers you use?), it’s because he is not being honest about
the motivation behind the plan to tax imports. The one and only reason behind
the push centers on the massive deficit the rest of the GOP tax plan would
create. (Take a fiscally irresponsible tax plan and add in a counterproductive
border tax adjustment!) In short, his tax plan needs the infusion of cash that
a tax passed on to U.S. consumers would raise.
Libertarian economist Veronique de
Rugy blasts Ryan for
intellectual dishonesty in claiming that the “United States was at a
disadvantage because other countries’ exports are exempted from taxes while
U.S. goods aren’t.” This is wrong:
For instance, he claims that Japanese exports are exempt
from taxes. No, Japanese products exported to the U.S. are exempt from the
Japanese VAT but the Japanese company is still paying U.S. corporate tax on its
U.S. profits. And you know what? In that sense, the Japanese export is treated
exactly like the U.S. goods sold in the U.S. In other words, the playing field
is even! I repeat: Japanese goods in the U.S. are taxed like U.S. goods in the
U.S. How about U.S. exports in Japan? Well, it gets hit by the Japanese VAT in
Japan and by the Japanese corporate tax but so are Japanese goods sold in
Japan. Again, the only disadvantage faced by U.S. companies selling tape
recorders abroad comes from the U.S. tax system, which requires that income
earned in Japan be taxed by Uncle Sam at 35 percent after benefiting from a tax
credit for tax paid in Japan. If the U.S. company decides to keep its Japanese
income outside the U.S., the U.S. rate won’t apply.
The plan will raise the cost of consumer goods. (Not even
Fed Chairman Janet Yellen buys into the notion that the U.S. dollar will
instantly and sufficiently rise in value to offset higher prices.) And it will
hurt a whole bunch of businesses that rely on imports, whether they are sold
directly to U.S. consumers or, in many cases, incorporated into U.S.-manufactured
goods.
De Rugy concludes: “The way to fix the U.S. disadvantage
is not to create a new expansive tax that would penalize imports in the U.S. —
including imports for the benefit of U.S. domestic companies — and would
penalize U.S. consumers. The solution is to reform our corporate-tax rate by
lowering the rate and moving to an origin-based territorial-tax regime.” The
problem is that such an approach won’t raise sufficient revenue to offset
revenue losses from Ryan’s underlying tax plan, raising the question as to
whether the tax plan is the real culprit here. (Maybe a
smaller tax cut, or one that does not reward upper-income taxpayers at all,
would be wiser? Nah, that would rain on the parade of the right wing, which for
years has been pining for a huge Ronald Reagan-style tax cut, although our
current debt, tax code and economic situation bear no resemblance to the
factors Reagan faced in the 1980s.)
This is no small or esoteric policy debate. Without the
border adjustment tax, the GOP tax plan will be (rightly) excoriated for
blasting an enormous hole in the budget. However, with the border adjustment
tax, the Senate and a great many House Republicans will not vote for it.
Retailers have organized against the border adjustment
tax. In particular, small businesses — the darling of Democrats and Republicans
alike — foresee disaster. The Wall
Street Journal recently reported that small businesses “typically have
less ability to negotiate better deals with suppliers or push through price
increases to customers or spend time and money modeling tax changes. More
than 95% of U.S. importers have fewer than 250 employees, according to 2014
U.S. Census data.”
Richard Woldenberg, chief executive of Learning
Resources, is marshaling some interesting data to defeat the plan. He told the
Journal that “a border-adjusted tax would increase Learning Resources’s tax
bill by four- to fivefold, even with a lower corporate rate. That would force
his company to raise prices by as much as 15%, which he fears could cause sales
to drop by 20% or more.” He pointed out that it is not as though there are
domestic suppliers readily available. (“Learning Resources tried in 2013 to
find a U.S. molder to produce simple plastic counting toys it could sell at
mass-market retailers with a ‘Made in the U.S.A.’ label. Just one firm bid on
the job. ‘They gave us a terrible quote,’ Mr. Woldenberg said.”) For this very
reason, many of President Trump’s products are made outside the country and
imported.
Woldenberg is
also amassing some politically potent data. On his website, he writes:
Rep. Kevin Brady [R-Tex.] is a big cheerleader for the
BAT as Ryan’s designee and Chair of Ways and Means. He has said publicly on
numerous occasions that he will go forward with this provision at all costs. Thus
far, despite lots of bad press and organized opposition that will endanger his
Republican majority in the House, he has refused to relent.
Notably, Brady’s own district is full of importers. . . .
According to my research in a public database, there have been 24,402 import
entries associated with zip codes either wholly or partially within Brady’s
district over 2015-16. The total importer count is 2430 in this two-year
period, including many individuals (let’s call them “voters”). They will
all have to pay up in Brady’s BAT …
Brady may be in a GOP safe seat, but he is not immune to
a primary challenge.
Trump and arrogant lawmakers can swear up and down that
protesters in their districts are paid phonies. What they cannot ignore are the
legions of small businesses, importers, retailers and consumers who will surely
conclude that they’ll be worse off than they are now with the border adjustment
tax. It is the sort of issue (tax cuts for the rich! price hikes at Walmart!)
that can set off a wave election.
Ryan might persist with the border tax
adjustment gimmick, but it likely will mean the end of his tax reform effort.
That would be some economic karma if a non-conservative, distortional tax grab
knocked the legs out from under a GOP that has decided to discard its fiscally
responsible free-market positions.
[557
Comments as of February 24, 2017]
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