For the longest time, crooked tax laws have charged companies 35 percent of worldwide profits when the money is brought into the United States. Now, thanks to the House Republicans, a new corporate income tax has been brought to the table.
The border adjustment tax is an innovative method to bring business back into the United States. Taxes will only be levied on profits made in the U.S. at a 20 percent rate.
Chapter One: The border adjustment tax is a tax on companies, not on consumers.
This plan sounds idyllic for companies (and conservatives) until the next part of the plan comes to light: all imports will undergo taxation.
The United States imported over $2.7 trillion in goods in 2016 alone. A tax on these goods cannot stay contained in businesses. These extra costs will simply be transferred to consumers’ ticket prices.
This is basic business practice. Any politician dumb enough to say otherwise should be immediately voted out of office for lying to their constituents. The tax will be inherently regressive, raising costs dramatically for the poorest Americans.
Chapter Two: The dollar will strengthen and offset rising prices for Americans.
The economists, however, have a solution.
If imports are extremely expensive and American goods are cheaper inside of the United States, demand for American products rises. More people will need U.S. dollars to buy U.S. goods. This creates a stronger dollar because demand for the dollar is greater than demand for the other currencies.
The problem here is simple: theory does not equal practice. For the price changes to be unnoticeable to the public, the dollar would need to increase in value by 20 percent. Is the GOP even aware that a one percent increase is dramatic?
The amount of time it would take for that hike is entirely unknown. Meanwhile, prices could soar across the country and devastate low-income neighborhoods.
Chapter Three: The world will sit by at the U.S. inflates its currency.
This is just plain ignorance. If countries follow the American way, they will complain as soon as they catch a drift of unfair play.
This tax is bordering illegal since the U.S. is a member of the World Trade Organization. Domestic goods cannot be preferred over imports under WTO law. Additionally, tax-free exports may be considered an American subsidy, which may violate the WTO subsidy agreement.
If the WTO does not approve of the law before it is passed, countries can sue the U.S. through the organization. It might not feel so good when the shoe is on the other foot.
There is nothing protecting the U.S. from others placing large tariffs on their exports. Mexico and China, two countries Trump dislikes, are the second and third-largest recipients of U.S. exports. That should bode well for the GOP tax plan, as well as the American economy.
Chapter Four: This plan is a good idea.
Decreasing the corporate income tax by 15 percent is a clear sign that the GOP is trying to be “business friendly,” or making money for the companies and affiliated PACs that donate to their campaigns.
The new import taxes might increase revenue by $100 billion annually, but the decrease in tax revenue could cost upwards of $250 billion annually. Revenue should exceed costs once the dollar strengthens, but that would take years.
This is time the United States does not have. Trump wants to increase the budget for border security and the Department of Defense, as well as a $25 billion border wall. Where will this extra money come from when federal tax revenues will fall by billions?
In the end, the cost falls to the everyday Americans. Cars, medicine, and produce are essential imports for consumers. How will lower-income Americans be able to afford the 20 percent increase in prices? Unfortunately, it does not seem that the Republicans actually care.