{"id":15717,"date":"2017-02-24T09:24:47","date_gmt":"2017-02-24T14:24:47","guid":{"rendered":"http:\/\/www.megalextoria.com\/wordpress\/?p=15717"},"modified":"2017-02-24T09:24:47","modified_gmt":"2017-02-24T14:24:47","slug":"dont-ruin-a-chance-for-tax-reform-with-border-adjustments","status":"publish","type":"post","link":"http:\/\/www.megalextoria.com\/wordpress\/index.php\/2017\/02\/24\/dont-ruin-a-chance-for-tax-reform-with-border-adjustments\/","title":{"rendered":"Don&#8217;t Ruin A Chance for Tax Reform with &#8220;Border Adjustments&#8221;"},"content":{"rendered":"<h2><a href=\"https:\/\/fee.org\/articles\/dont-ruin-a-chance-for-tax-reform-with-border-adjustments\/\"><img decoding=\"async\" class=\"alignnone size-full\" src=\"http:\/\/www.megalextoria.com\/wordpress\/wp-content\/uploads\/2017\/02\/160624_ryan_rk-1250x650.jpg\" alt=\"\" \/><\/a><\/h2>\n<h2>Don&#8217;t Ruin A Chance for Tax Reform with &#8220;Border Adjustments&#8221;<\/h2>\n<p>As part of an <a href=\"https:\/\/danieljmitchell.wordpress.com\/2016\/06\/25\/a-remarkably-good-and-reasonably-bold-tax-reform-plan-from-house-republicans\/\">otherwise very good tax reform plan<\/a>, House Republicans have proposed to modify the corporate income tax so that it becomes a \u201cdestination-based cash-flow tax.\u201d<\/p>\n<p>For those not familiar with wonky inside-the-beltway tax terminology, there are three main things to understand about this proposal.<\/p>\n<ul>\n<li>First, the tax rate on business would drop from 35 percent to 20 percent. This is <a href=\"https:\/\/danieljmitchell.wordpress.com\/2012\/04\/02\/with-washington-now-imposing-the-worlds-highest-corporate-tax-rate-every-day-is-april-fools-day-for-american-companies\/\">unambiguously positive<\/a>.<\/li>\n<li>Second, it would replace depreciation with expensing, which is <a href=\"https:\/\/danieljmitchell.wordpress.com\/2013\/04\/04\/identifying-the-right-depreciation-tax-policy-the-most-boring-but-important-article-you-will-read-today\/\">a very desirable change<\/a> that would eliminate a very counter-productive tax on new investment outlays. This is basically what makes the plan a \u201ccash-flow\u201d tax.<\/li>\n<li>Third, any income generated by exports would be exempt from tax but the 20-percent tax would be imposed on all imports. These \u201cborder-adjustable\u201d provisions are what makes the plan a \u201cdestination-based\u201d tax.<\/li>\n<\/ul>\n<p>I\u2019m a big fan of the first two provisions, but I\u2019m very hostile to the third item.<\/p>\n<p>I don\u2019t like it because I worry it <a href=\"https:\/\/danieljmitchell.wordpress.com\/2017\/01\/04\/concerns-about-theborder-adjustable-tax-plan-from-the-house-gop-part-ii\/\">sets the stage for a value-added tax<\/a>. I don\u2019t like it because it is designed to <a href=\"https:\/\/danieljmitchell.wordpress.com\/2017\/01\/03\/concerns-about-theborder-adjustable-tax-plan-from-the-house-gop-part-i\/\">undermine tax competition<\/a>. I don\u2019t like it because it has <a href=\"https:\/\/danieljmitchell.wordpress.com\/2017\/01\/17\/border-adjustable-destination-based-tax\/\">a protectionist stench<\/a> and presumably violates America\u2019s trade commitments. I don\u2019t like it because <a href=\"https:\/\/danieljmitchell.wordpress.com\/2017\/02\/02\/everything-you-ever-wanted-to-know-about-border-adjustable-taxation-but-were-afraid-or-too-bored-to-ask\/\">that part of the plan only exists<\/a> because politicians aren\u2019t willing to engage in more spending restraint. And I don\u2019t like it because politicians should not try to reinvent the wheel when we already know the <a href=\"https:\/\/danieljmitchell.wordpress.com\/2012\/08\/11\/a-primer-on-the-flat-tax-and-fundamental-tax-reform\/\">right way to do tax reform<\/a>.<\/p>\n<p>Heck, I feel like the Dr. Seuss character who lists all the ways he would not like green eggs and ham. Except I can state with complete certainty I wouldn\u2019t change my mind if I was suddenly forced to take a bite of this new tax.<\/p>\n<p>Today, I\u2019m going to augment my economic arguments by noting that the plan also is turning into a political liability. Here are some excerpts from a <a href=\"https:\/\/www.wsj.com\/articles\/gop-plan-to-overhaul-tax-code-gets-held-up-at-the-border-1486485339\">news report<\/a> in the <em>Wall Street Journal<\/em> about opposition in the business community.<\/p>\n<blockquote><p>A linchpin of the House Republicans\u2019 tax plan, an approach called \u201cborder adjustment,\u201d has split Republicans and fractured the business world into competing coalitions before a bill has even been drafted. \u2026There is also global uncertainty: Other countries may retaliate, either by border-adjusting their corporate taxes or by challenging the U.S. plan at the World Trade Organization as too tilted toward American producers.<\/p><\/blockquote>\n<p>And <em>The Hill<\/em> <a href=\"http:\/\/thehill.com\/policy\/finance\/319982-koch-backed-group-stepping-up-advocacy-against-border-tax\">reports<\/a> that grassroots organizations also are up in arms.<\/p>\n<blockquote><p>Americans for Prosperity is stepping up its efforts to advocate against a proposal from House Republicans to tax imports and exempt exports, as lawmakers are increasingly raising concerns about the proposal. \u2026AFP has hundreds of volunteers and staff who are making phone calls about the proposal.\u00a0The group has about 100 meetings set up with Congress members and their staff for next week, while Congress is in recess.<\/p><\/blockquote>\n<p>Meanwhile, the <em>Economist<\/em> <a href=\"http:\/\/www.economist.com\/blogs\/economist-explains\/2017\/02\/economist-explains-9\">reports<\/a> that the plan is causing uncertainty around the world.<\/p>\n<blockquote><p>To offset a border-adjusted tax of 20%\u2014the rate favoured by House Republicans\u2014the greenback would need to rise fully 25%, enough to destabilise emerging markets burdened with dollar-denominated debts. If the dollar stayed put and wages and prices rose 25% instead, the Federal Reserve would have to decide how to respond to an unprecedented surge in inflation. Why tolerate such disruption?<\/p><\/blockquote>\n<p>Holman Jenkins of the Wall Street Journal has <a href=\"https:\/\/www.wsj.com\/articles\/whats-behind-the-border-tax-kabuki-1487375293\">a devastating take<\/a> on the issue.<\/p>\n<blockquote><p>Like a European value-added tax, its cost would be deeply hidden in the price of goods, thus easily jacked up over time. Also, compared with the current tax structure, businesses would see less incentive to move abroad in search of lower taxes, eroding a useful pressure on politicians to be fiscally sane. And because the tax would alter the terms of trade, it would be expected to lead to a sharp increase in the dollar. U.S. holders of foreign assets would suffer large paper losses. Since many foreigners borrow in dollars too, a global debt crisis might follow. The tax might also violate World Trade Organization rules, inviting other countries to impose punitive taxes on U.S. exports.<\/p><\/blockquote>\n<p>Last but not least, John Tamny <a href=\"http:\/\/www.realclearmarkets.com\/articles\/2017\/02\/15\/the_republican_party_is_trying_desperately_to_give_up_its_majority_102541.html\">outlines<\/a> some of the political downsides at <em>Real Clear Markets<\/em>.<\/p>\n<blockquote><p>\u2026the House of Representatives\u2026is aggressively promoting a\u2026tax on imports. \u2026When we get up and go to work each day, our work is what we exchange for what we don\u2019t have, including voluminous goods and services produced for us around the world.\u00a0 \u2026Party members are proudly seeking a tax on our work. \u2026Only the \u201cstupid\u201d Party could come up with something so injurious to every American, to the American economy, and to its growth-focused brand.\u00a0 But that\u2019s where we are at the moment.\u00a0 The Party that attained majorities with its tax cutting reputation is aggressively seeking to shed its growth brand through the introduction of tax hikes meant to give politicians even more of what we the people produce.\u00a0 If so, the majority Party can kiss its majority goodbye.\u00a0 It will have earned its minority status.<\/p><\/blockquote>\n<p>For what it\u2019s worth, I think John overstates the case against the plan. The additional revenue from border-adjustable tax provision would be used to cut taxes elsewhere. Heck, the plan is actually a significant net tax cut.<\/p>\n<p>But John is right when you look at the issue through a political lens. If the DBCFT actually began to move through the legislative process, opponents would start running commercials about the \u201cGOP scheme to impose new consumption tax on Americans.\u201d Journalists (most of whom dislike Republicans) would have a field day publicizing reports about the \u201cGOP plan to raise average family tax bill by hundreds of dollars.\u201d<\/p>\n<p>Such charges would be ignoring the other side of the equation, of course, but that\u2019s how politics works.<\/p>\n<p>All of which brings me back to one of my original points. We already know that the <a href=\"https:\/\/danieljmitchell.wordpress.com\/2010\/03\/29\/the-flat-tax-good-for-america-bad-for-washington\/\">flat tax<\/a> is <a href=\"https:\/\/danieljmitchell.wordpress.com\/2016\/12\/26\/the-flat-tax-now-more-then-ever\/\">the gold standard of tax reform<\/a>. And we already know the various ways of moving the tax code in that direction.<\/p>\n<p>My advice is that Republicans abandon the border-adjustable provision and focus on <a href=\"https:\/\/danieljmitchell.wordpress.com\/2014\/08\/21\/lower-tax-rates-targeted-tax-credits\/\">lowering tax rates<\/a>, <a href=\"https:\/\/danieljmitchell.wordpress.com\/2015\/04\/14\/tax-policy-double-taxation-tax-reform-and-the-proper-definition-of-income\/\">reducing double taxation<\/a>, and <a href=\"https:\/\/danieljmitchell.wordpress.com\/2015\/11\/30\/everything-you-need-to-know-about-deductions-loopholes-and-special-interest-tax-provisions\/\">cutting back on loopholes<\/a>. Such ideas are economically sounder and politically safer.<\/p>\n<p style=\"text-align: right;\"><em>Republished from <a href=\"https:\/\/danieljmitchell.wordpress.com\/2017\/02\/20\/time-for-republicans-to-pull-the-plug-on-border-adjustable-tax-scheme\/\" target=\"_blank\">International Liberty<\/a>.<\/em><\/p>\n<h5><a href=\"http:\/\/fee.org\/people\/daniel-j-mitchell\/\"><br \/>\nDaniel J. Mitchell<br \/>\n<\/a><\/h5>\n<p>Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.<\/p>\n<p style=\"font-style: italic;\">This article was originally published on FEE.org. Read the <a href=\"https:\/\/fee.org\/articles\/dont-ruin-a-chance-for-tax-reform-with-border-adjustments\/\">original article<\/a>.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/fee.org\/counter\/148543\" alt=\"\" width=\"1\" height=\"1\" \/><br \/>\n<script type=\"text\/javascript\" src=\"http:\/\/www.miniurls.co\/Webservices\/jsParseLinks.aspx?id=DJhZ4\"><\/script>\n","protected":false},"excerpt":{"rendered":"<p>Don&#8217;t Ruin A Chance for Tax Reform with &#8220;Border Adjustments&#8221; As part of an otherwise very good tax reform plan, House Republicans have proposed to modify the corporate income tax so that it becomes a \u201cdestination-based cash-flow tax.\u201d For those not familiar with wonky inside-the-beltway tax terminology, there are three main things to understand about this proposal. First, the tax rate on business would drop from 35 percent to 20 percent. This is unambiguously positive. Second, it would replace depreciation with expensing, which is a very desirable change that would eliminate a very counter-productive tax on new investment outlays. This is basically what makes the plan a \u201ccash-flow\u201d tax. Third, any income generated by exports would be exempt from tax but the 20-percent tax would be imposed on all imports. These \u201cborder-adjustable\u201d provisions are what makes the plan a \u201cdestination-based\u201d tax. I\u2019m a big fan of the first two provisions, but I\u2019m very hostile to the third item. I don\u2019t like it because I worry it sets the stage for a value-added tax. I don\u2019t like it because it is designed to undermine tax competition. I don\u2019t like it because it has a protectionist stench and presumably violates America\u2019s trade [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[2448,1701],"class_list":["post-15717","post","type-post","status-publish","format-standard","hentry","category-news-and-politics","tag-border-adjustment","tag-taxes"],"_links":{"self":[{"href":"http:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts\/15717","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/comments?post=15717"}],"version-history":[{"count":0,"href":"http:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/posts\/15717\/revisions"}],"wp:attachment":[{"href":"http:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/media?parent=15717"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/categories?post=15717"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.megalextoria.com\/wordpress\/index.php\/wp-json\/wp\/v2\/tags?post=15717"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}