Friday, May 12, 2017

Chaos in Washington . . . but a Few Thoughts on the BAT Anyway

The repulsive degradation of national leadership in the last few days certainly sapped my energy.  Nevertheless, despite the downward spiral of the Trump Presidency and its implications for the prospects of the BAT, we are not out of the woods, and must keep the pressure up.

A few tidbits of news for you:

Ways and Means Hearing Set for Thursday:  Kevin Brady and Peter Roskam called hearings for May 18th on tax reform.  Let's not do cartwheels yet.  This is something like a Soviet show trial. The outcome of the "hearing" is known in advance.  Please don't mistake the hearing for an actual interest in dialogue or fact finding.  This is about creating a record to justify what they always wanted to do.  In any event, Steven Mnuchin tweeted his approval, noting the need to "emphasize economic growth".  As previously noted here, the anti-growth aspect of the BAT kills it for the estimable Trump Administration.

House Majority Leader Kevin McCarthy Admits the BAT is not going well. McCarthy actually said it will be "very difficult" to get through.  See the video:

Frankly, tax reform seems remote given the controversy paralyzing Washington right now.  Let's not forget that health care must come first, then a budget, then tax reform.  And the Trump plan imposes ridiculous financial stress on the American economy with skyrocketing fiscal deficits, something this Congress is highly unlikely to approve.  Then what?  Who knows.

An interesting next shoe to fall is when Congressional Republicans start to turn on Mr. Trump.  He may have started this process with the Comey firing.  In my book, that all but ends tax reform and with it goes the BAT.

Follow up on Canada:  In my last post, I noted that the imposition of the BAT on Canadian imports into the U.S. will generate about half of the expected value of the BAT.  Whoa.  Please note, however, that the BAT proposal also eliminates tax on all U.S. exports to Canada.  With $266 BB in 2016 exports to Canada, the elimination of income tax on those sales will be quite a shot in the arm for U.S. exporters' competitiveness in Canadian markets.  Think they'll notice?

To put this in perspective, please remember the hullabaloo over the 20% tariff recently imposed on Canadian softwood-lumber exports to the U.S.  That sudden move spurred an immediate series of interactions between the U.S. and Canada, including calls between Justin Trudeau and Trump.  And how much was at stake?  $1 BB in tariffs on $5 BB in U.S. imports.  This absolutely pales in comparison to the shocks that the BAT would impart on both Canadian imports here and U.S. exports into Canada.  One billion dollars is just chump change by comparison.  Yet the BAT continues to enjoy the support of House Republican leadership.  Does not compute.  Does not compute at all.

More to follow, no doubt.

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