Posted on 03/19/2017 8:28:57 PM PDT by MarvinStinson
House Speaker Paul Ryan's ambitious tax overhaul relies on an import tax concept originally developed by a Berkeley economist who once advised Democratic presidential candidate John Kerry.
Alan J. Auerbach is the director of the Robert D. Burch Center for Tax Policy and Public Finance at the University of California, Berkeley. He served as an economic counselor to Kerry during his 2004 presidential campaign.
He also happens to be known as the godfather of "border adjustability," the linchpin of the tax reform plan that Ryan, a conservative Wisconsin Republican, is attempting to sell to the White House and push through the GOP Congress.
In a March 6 op-ed in the New York Times that Auerbach co-authored with Michael Devereux, a professor at Oxford University's Said Business School, he praised Ryan's tax overhaul and made a direct appeal to liberal critics of the Ryan tax plan.
"Critics, particularly those on the political left, have expressed concern that the tax isn't progressive enough," Auerbach and Devereux wrote. "But it promises to be more progressive than the current United States corporate tax system: Its burdens would fall squarely on the owners of corporate capital rather than — as happens to some extent now — on American workers, whose wages suffer from the flight of productive investment capital to lower-tax countries."
In an email exchange on Friday with the Washington Examiner, Auerbach said he first started writing about the concept of border adjustability in 1997. Ryan was elected to Congress the following year and 10 years later produced a tax reform proposal that included a "border-adjustable business consumption tax."
Auerbach, a registered independent, said he doesn't view a border tax as liberal or conservative, despite his belief that it could be more progressive because it would move the tax burden from workers to corporations.
"I view it as good tax policy," he said. "Given how bad the current corporate tax system is, and the weakness of the other proposed alternatives, I would hope that what I view as a sensible approach could get broad support."
Auerbach said that did not advise House Republicans on the formulation of the Ryan tax plan.
Congressional Republicans, and President Trump, largely agree on many elements of Ryan's plan, including lowering individual and corporate rates, and streamlining the tax code. But there is a big fight brewing over border adjustability.
Also known as an import tax, border adjustability would radically shift how the U.S. taxes imports and exports. Income that businesses earn on the sales of domestic goods would not be taxed, but income earned from the sale of imported goods would be taxed.
Republican opponents of the proposal, most prominent in the Senate, are looking for any edge they can find to derail it. And one argument they've landed on is that border adjustability is the opposite of what conservative tax reform looks like. Critics could use Auerbach's association with the proposal to drive that argument.
They also contend that it would jack up the prices of consumer staples that low- and middle-class families depend on.
"The border adjustment tax is regressive, hammers low- and middle-income consumers, and it does not foster growth. What it does do is grow the size of central governments," Sen. David Perdue, R-Ga., told the Washington Examiner in a statement provided by his office.
House Ways and Means Committee Chairman Kevin Brady chuckled when he was asked to counter claims that border adjustability isn't conservative policy.
The Texas Republican refers to the current tax system as levying a "made in America tax" on domestically manufactured goods because foreign countries hit American products with a value-added tax, something their exports aren't subject to by the U.S.
That puts U.S. exports at a competitive disadvantage, both at home and abroad. There's nothing conservative about that, Brady said.
"No one can defend the current tax code, that favors foreign products over U.S. products. Equal taxation is conservative policy. And, by the way, that's true competition — that always, in my view, accrues to consumers," Brady said. "Conservatives have never believed that there should be tax incentives to move American manufacturing jobs, research and headquarters overseas."
Supporters of the border adjustability import tax dismiss the critics who say it will cause the price of consumer goods to spike. As Brady explained, they believe foreign countries will adjust their currencies to account for the new U.S. tax policy, with prices remaining stagnant.
Major U.S. retailers disagree. They have formed a new trade association, Americans for Affordable Prices, aimed at defeating border adjustability. Many of the Republicans who oppose the provision hail from states where retailers are headquartered.
Republicans are set to take up tax reform after they clear legislation to repeal and replace Obamacare. Ryan has said his plan is for tax reform to be completed by the end of July, when Congress is scheduled to adjourn for its summer recess. Senate Majority Leader Mitch McConnell, R-Ky., said it could take longer to process tax reform in his chamber.
Trump, who has promised to renegotiate U.S. trade deals to encourage more domestic manufacturing, remains noncommittal on the border adjustability import tax.
Exactly
“Ryan deserves to go down in flames in any other attempt to continue his political career. “
Trump is nobody’s fool. He hates Ryan, and if anyone is being set up to fail, it’s Ryan : )
Wonderful summary of Rinocare. It must be defeated. It will be defeated if Trump can’t get the communism out of it. You cant sell me car insurance where someone wrecks his corvette and then buys a policy.That drives my premium through the roof!! GET PREEXISTING CONDITIONS OUT OF MY POOL!! You cant sell me car insurance if you take money in my premium and buy someone elses car insurance. That is not fair to me ( I work hard for my money).
admittedly, i’m in a learning mode here, and going on my interpretation of the article’s definition of “border adjustment tax”— which in itself sounds orwellian; however, my interpretation is that a (1) tariff on a foreign made product is paid by the foreign exporter in American dollars to the American gov’t, vs. (2) the border adjustment tax—which is a tax paid on a foreign produced product by a combo of American seller and consumer (really the American consumer as all such taxes are traditionally passed on to the consumer).
is that right? if so, that’s a vast difference, imo.
This basically doesn't exist - tariffs are paid by the importer of record. It has to be this way because the US has no jurisdiction to tax foreign companies that are exporting to the US. The first moment that a tax can be applied is when a product arrives in the US, and at that point, it is whoever is receiving that has to pay.
The difference between a classic tariff and the border adjustment tax is that a tariff is paid by the importer when the product arrives in the country, and the border adjustment means the importer can't deduct the cost of buying the imported product from their taxes.
So under a straight tariff, if I import a $1 apple from china, I might pay a 30% tariff when it arrives in country : $.30 check to the govt. Under border adjustment, I import the $1 apple then sell it for $2. At the end of the year when I file taxes, I have to report a $2 profit because I can't deduct the $1 as the cost. At a 20% corporate tax rate, I'd pay $.40 to the govt. But if I bought an American apple for $1.25 and sold it for $2, I'd be able to deduct the cost, and only have to pay tax on $.75 of profit and would pay $.15 to the government.
I'm not advocating for a border adjustment tax, but I think it is an interesting idea that's worth looking at. It really does the same thing as a tariff, just applied in a different way,
from websters:
Tariff
TAR’IF, noun
1. Properly, a list or table of goods with the duties or customs to be paid for the same, either on importation or exportation, whether such duties are imposed by the government of a country, or agreed on by the princes or governments of two countries holding commerce with each other.
Importer
IMPO’RTER, noun He that imports; the merchant who, by himself or his agent, brings goods from another country or state.
Merchant
1. A man who traffics or carries on trade with foreign countries, or who exports and imports goods and sells them by wholesale.
ok FRiend, thanks for the clarification: given the above definitions for tariff, importer and merchant: if an importer of record is the “merchant.” i’m ok with the “importer of record” paying the tax, whether he’s an importer or exporter or both; whether he’s an agent of a foreign gov’t or a multinational co; whether he’s even a us citizen—because the importer of record is the “trafficker.”
i’m definitely not ok with an American retailer who is not the trader or trafficker paying the tax, which i think would be the case with the so called “border adjustment tax.” which i would call the “soak the American consumer tax act while adding zero risk to the trafficker and the foreign country whose products he’s trafficking” to our country.
also notice that the proper (just) goal and purpose of the tariff is imbedded in the defintion above, that of getting a fair treaty “agreed on by the princes or governments of two countries holding commerce with each other.”
Why, yes, Karl, a National Retail Sales Tax, in the form of the FAIRtax, is PRECISELY the answer!
We need you help!
To find out how you can help, go to https://www.fairtax.org.
America will never be FRee (or great again, for that matter!) as long as we suffer under the Marxist inspired progressive income tax and are kept enslaved by the Internal Revenue System!
MAGA! Help us replace the income tax iwth the FAIRtax and abolish the IRS!
FRom http://www.fairtaxplan.org/faq.php
“Question: How does this [FAIRtax] affect U.S. competitiveness in foreign trade?
“Answer:
“Since all U.S. exporters immediately see an average 20-percent reduction in their production costs, they experience an immediate boost in their competitiveness overseas. American companies doing business internationally are able to sell their goods at lower prices but similar margins, and this brings jobs to America.
“In addition, U.S. companies with investments or plants abroad will bring home overseas profits without the penalty of paying income taxes, thus resulting in more U.S. capital investment.
“And at last, imports and domestic production are on a level playing field. Exported goods are not subject to the FairTax, since they are not consumed in the U.S.; but imported goods sold in the U.S. are subject to the Fair Tax because these products are consumed domestically.”
I like FAIRtax, and a border adjustment would be very similar.
In today’s economy, most of the time the retailer is the importer. Walmart is importing their the crap directly from China. Apple is manufacturing, importing and retailing iPhones. Best Buy is buying appliances from Haier in China. What’s the difference to you whether the tax is applied at the border as a tariff, or is applied via tax accounting? Does the consumer pay either way? Probably, and that is a rational reason to oppose all tariffs. But once you decide to follow a more protectionist/interventionist trade policy, a border adjustment is as reasonable a strategy as a tariff.
The beauty of FAIRtax is that FAIRtax IS A LEGAL (by international law) border tax.
A contrived, piecemeal, product specific border tax is not legal under international law.
I am not an expert on the GATT, but every one of our major trading partners has a legal border tax (THE USA, AS NOTED, DOES NOT!) - it is called a Value Added Tax (VAT) and the USA definitely does not want a VAT!
VAT is an evil tax!
Totally agree that FAIRtax would be a dream plan. But if we aren’t going to get a full tax system reform, including repealing the 16th amendment, a border adjustment seems like a reasonable approach to dealing with our current trade issues, and better than a piecemeal or product or country specific tariff.
Precise analogy.
1) Low uniform tariff on all imports
2) 9 or 10% flat tax on personal income with no exemptions, deductions, credits, etc and from the first dollar of income. or
3) straight up uniform sales tax on goods and services.
Of those three the best is the flat tax. It is low enough that evasion will be minimal. Both of the others would, at any level, promote smuggling and off-the-books trade.
Preexisting condition needs high risk pool — not ruin my pool. You pay for it— I dont. This is about free market — not free stuff!!
Bookmark
FAIRtax is only complicated to those who refuse to understand and appreciate FReedom!
The prebate is included to allow ALL family units to purchase the necessities of life tax FRee, and to instill a measure of progressivity into the tax system. It is profoundly regrettable to me that Americans have been coerced/hornswaggled into believing that people who are successful in life and earn higher incomes should be penalized for their success.
FAIRtax REWARDS success!
Your so-called “flat tax” is still an income tax, and you know as well as I do that we will NEVER be a FRee country so long as we have an income tax and the IRS exists!
Is your concept codified in legislation?
FAIRtax is: S 18 & HR 25.
I have read all the literature around about ‘Fair’ Tax. It is a statist scam for the hoi polloi.
You are certainly entitled to your opinion, wrong as it is!
You got some ‘splainin’ to do re: “statist scam for the hoi polloi.”
Care to tell us how you arrived at that conclusion? Specifically?
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