GOP Border Tax Will Build a Wall Around Consumers
A little news item earlier this year generated a collective gasp across the Internet when it was reported that more than half of all Americans can’t afford to write a $500 check in the event of an emergency. This statistic on the woeful state of our national savings (and earnings) comes courtesy of Bankrate, who surveyed 1,000 Americans to find that 57 percent would be stretched to the limit if forced to empty their bank accounts and turn over sofa cushions to muster five portraits of Ben Franklin.
It’s troubling enough that most Americans are one auto deductible away from having less money to their name than a person passing through Ellis Island in 1920. And yet it is upon this foundation of economic quicksand that House GOP leaders are now trying to build a tax-reform agenda that will hit consumers right in their empty wallets.
With the GOP holding the reins in D.C., the timing should be perfect to produce real tax reform by lowering rates, ending the death tax, and simplifying the labyrinth of rules, deductions, exemptions, credits, and sweetheart arrangements for pet industries. Instead, Congress is proposing a Border Adjustment Tax (BAT), which pits the heavily interdependent import and export economies against each other while demanding that American consumers pay the difference.
Under the BAT, goods imported into the U.S. will have a 20 percent tax levied against them. The logic, according to House Ways and Means Chairman Kevin Brady, is to align our tax policy with foreign nations who impose taxes on imports while simultaneously supporting U.S. manufacturers by giving a tax advantage to domestically produced goods. Would that advantage America? So they’d have you think.
Proponents argue taxing imports will help our trade deficit, strengthening the dollar and thus lifting all boats. But even if that Rube Goldberg plan works, it would devalue the hundreds of billions American taxpayers and industries hold in foreign investments and securities. The result? Americans would be poorer by an estimated $120 billion per year, or half a percent of GDP.
Believing we can strengthen our economy by increasing prices on American consumers is like believing the Cleveland Browns will finally get it right with the first pick in this year’s NFL draft. Instead of simplifying the current tax code — which currently costs American industry and workers tens of billions of dollars each year in compliance costs alone — the BAT adds an entirely new layer of complication, to say nothing of the increased cost of goods.
What’s more, as Americans are forced to pay 20 percent or more for cell phones, automobiles, TVs, appliances and energy (just to scratch the surface), the BAT will subsidize foreign consumers with a tax exemption on exports. We can achieve trade benefits more effectively with a lower and simpler corporate tax structure that doesn’t make American consumers pay to offset the difference.
Supporters speak of the BAT as a magic bullet that will stop manufacturing flight out of the U.S., fix our woeful trade deficit, add tax revenue, and strengthen the dollar — all while being passively accepted by our global trade partners, who are expected not to adjust, protest, or retaliate. This is a Washington-knows-best plan what might expected from a liberal academic, not the Republic Party. No surprise that the godfather of the BAT is Berkeley professor Alan J. Auerbach, an economist who advised John Kerry in his 2004 bid against George W. Bush. Auerbach recently took to the pages of The New York Times to argue that his plan is “more progressive” than the current corporate tax structure. At least he gets points for consistency. But conservatives — not liberals — swept Washington in November. Is conservative tax reform too much to ask?
The over-taxed U.S. consumer deserves a break. Reform that simplifies the tax code and lowers rates is the answer, not the BAT. Workers today make 2.4 percent less than they did in 1999, while the cost of essential expenses, such as housing, clothing, transportation, education, and child care, are rising sharply, putting better standards of living further out of reach. It’s no wonder people can’t save. Let’s not make things worse by passing a complex and expensive tax scheme that builds a wall around consumers.
Matthew Kandrach is President of CASE, Consumer Action for a Strong Economy, a national free-market consumer group.