Border Adjustment Tax Is the Paris Agreement All Over Again
When President Trump rejected the Paris climate agreement earlier this month, he masterfully articulated its failures. Trump proffered not only a scorching indictment on principle, but also excoriated its transgressions against America's workers and consumers.
In laying out his vision, the president made clear he'd support only those deals that are “fair to the United States, its businesses, its workers, its people, its taxpayers.” Trump demonstrated, unlike the previous administration, that he works for the American people. The Paris agreement has many failings, but by far the worst is that it would have been an angel of death for job growth, standard of living, and consumer markets.
Aside from “fiercely conservative” leaders like Mitt Romney, the center-right cheered Trump's actions. They agreed that no matter how noisy the tantrum thrown by foreign leaders, America doesn't need “cosmopolitan elites” running our lives.
In the wake of the Paris decision, then, it's mind-boggling that the Republican House majority is planning to push a European-style tax system that has more in common with the Paris agreement than true conservative tax reform. Like the climate agreement, this scheme would skew the marketplace based on the machinations of politicians.
With Washington promising the “most consequential” tax reform in American history, House leaders are working to enact a plan to raise between $100 and $120 billion per year in revenue through a 20 percent border adjustment tax (BAT) on foreign goods bought by U.S. consumers. Cue the record scratch sound: saddling consumers with a $120 billion yearly tab is now tax relief?
It's a sad irony that just as we're distancing ourselves from the globalist nonsense of the Paris agreement, efforts are afoot to import a trademark European policy to our shores: the value added tax (VAT). As the Brookings Institution has noted, the BAT is little more than a modified VAT and is, itself, border adjusted (though it doesn't distinguish between foreign and domestic goods). The BAT and the VAT are created from the same DNA; both are designed to saddle consumers with higher taxes, shifting revenue to subsidize economic activities approved by politicians.
BAT proponents have noted some of its merits, such as giving companies an incentive not to move operations overseas. But the plan comes at a steep price. The 20 percent tax on consumers will, according to Brookings, hit “low-income households disproportionately,” and will not make life any easier for the middle class. To swallow this bitter tax pill, we're being asked to assume that the dollar will appreciate — far from a sure thing — and hope that we prevail against our trading partners at the WTO, who have signaled that they will file the largest trade complaint in history against the U.S.
BAT supporters even have a catchy phrase: that they intend to end the “made in America tax.” But because of the double-digit price increase for the consumer looking to buy a car, a cell phone, clothing, or electronics, it will really be more like a “not bought in America tax.”
By design, the Paris agreement would have caused a double-digit increase in the cost Americans pay for energy. The BAT does likewise, but across hundreds of industries — not just energy. Proponents claim that it is needed to even the playing field with the 159 nations who currently have border adjustability. But consensus proved unpersuasive regarding the Paris agreement; it shouldn't be persuasive for the BAT either. Like the Paris agreement's uneven treatment of participating nations, proponents of the BAT admit it will create “winners and losers.” This obviously flies in the face of Trump's directive for fairness for average Americans.
Adopting globalist tax policies is a far cry from the conservative tax reform of presidents like JFK and Ronald Reagan, who lowered rates and raised revenue through accelerated economic growth. True conservative tax reform doesn't take a hammer to consumers; nor does it add layers of complexity to coerce markets. We do not need Washington pulling Pinocchio's strings. Economic growth that leads to a broader tax base comes from letting the market decide.
Trump rightly bowed out of Paris because it was a bad deal, one that would have hurt consumers and given too much power to bureaucrats. Unfortunately, the BAT is no better. After the definitive rejection of the globalist Paris agreement, it is impossible to reconcile embracing a globalist tax scheme that punches struggling Americans right in the wallet.
Matthew Kandrach is President of CASE, Consumer Action for a Strong Economy, a free-market consumer advocacy group based in Arlington, VA.