Monday, April 3, 2017

Brady Talks Transition, Which Won't Work, but the BAT's Political Reality is Grimmer than Ever.

Rep. Kevin Brady on Sunday March 26th repeated some of his tall tales about the Border Adjustment Tax on Fox News, but added a promise to phase it in.  Should we rejoice?

Not in my book.  Brady, by repeating falsehoods to sell a failed tax plan, lowers the bar for the already sinking Republican brand, and likewise makes clear that he and Paul Ryan are stubbornly deaf to criticism.  Don't take their "promise" to listen in any way seriously.  They want us to listen to them, and turn off our brains while we're at it.

One wonders if this is like a Roadrunner cartoon when an anvil falls out of the sky onto the head of a cartoon character.  Just like Wile E. Coyote, it seems to have no effect.

On the subject of "phase in", let me state (repeat is more like it) that a phase in is NOT a solution to the issues caused by the BAT.  If you hated the BAT without a phase in, you will hate it just as much with a phase in.  The issues are:

1.    A phase in does not alter the fact that tax rates will rise sharply for importers who will be forced to raise prices on consumers.  Cost recovery won't improve and the ability to move manufacturing back to America to avoid taxes will not improve either. The pain will just be longer and more persistent.

2.    A phase in does not address the inability of exchange rates to cover increased tax burdens on importers.  The purported means by which Brady and Ryan claimed importers would never pay an extra dime in taxes is almost entirely mooted in any phase in.  It wouldn't have worked anyhow, but stretched over years becomes even more farfetched.

3.    Since a phased approach is intended to facilitate transitions, it is important to ask which multi-year transitions are expected to result.  The economics of manufacturing here is going to be driven by the availability of lower cost automation.  The imbalance of costs facing the importer will mainly result in a longer period of persistent inflation and longer weakness as the government adds to the load year after year.

Spreading the impact is supposed to allow time to adjust, but unfortunately, time is not what's missing here.  What's missing is political common sense, and there is no transition possible there, I guess.

Perhaps more amazing about this approach is that it ignores the political reality facing Ryan and Brady.  There is only so far that denial can take you.  Brady's political problems are many:

a.  He is losing House Republicans.  As previously noted, Mike Kelly on Ways and Means has been openly and impolitely scornful of the proposal on camera.  No hiding.  He's not alone. The media reports of shrinking support are mounting.  It's reminiscent of the healthcare legislation.

And how did that turn out?

b.   Trump's erratic and impetuous approach to dealmaking is destroying any possibility of a Republican coalition.  Is he for you, or against you, or for you and against you, or against you without telling you?  It's not a pretty picture, so why would anyone trust him with their vote?  After the healthcare debacle and the pending Gorsuch catastrophe in the Senate, don't count on Democrats choosing to rescue tax reform. That's just pure fantasy, sorry.

c.   The Senate is dead set against the BAT.  Among the many reasons, and there are many, Senators from agricultural states are worried that retaliation against American grains will follow implementation of the BAT.

How do Ryan and Brady plan to get House Republicans to pull the lever for this tax increase aimed at small businesses and hundreds of thousands of good American businesses, all the while knowing that the bill will crash and burn in the Senate?  This is political hara-kari - not a good seller on the Hill.  I am surprised this is credible to anyone at this point.

In other words, it's healthcare all over again.  You really have to scratch your head at the stubbornness, the hopeless obliviousness of Brady and Ryan.  Go down the ship, why don't you?

Trump, for all his randomness, seems to have no intention of going down with the ship. According to Politico and Breitbart, he has decided to go his own way, dumping Ryan's plan and putting out his own tax proposal sans BAT.  This is both sweet revenge for healthcare (given Ryan's effort to do Trump's bidding, will anyone want to trust Trump now?) and a cold political assessment that the BAT is kaput.  It's fascinating that Trump would dump the BAT first.  The reasons to move away from that toxic plan have been obvious for a long time, but only the brain dead couldn't see it after the healthcare debacle.

And, apparently, Brady and Ryan are among the brain dead.

Count the days.  We will see the BAT crash and burn very, very soon.  We're almost there now.

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