Corporate Taxes

GOP Anti-Import Border-Adjustment Tax Is Protectionist Garbage

Talking immigration, tax inversions, and more with Kennedy on Fox Business.

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https://twitter.com/FNC_Ladies_Rule

I was on Fox Business' Kennedy last night, talking with the eponymous host about the Republican plan to levy a "border-adjustment tax" on imports. This is part of a larger tax plan, some of which President Trump has said he supports, to cut corporate rates from 35 percent to 20 percent.

Cutting corporate taxes—which are mostly passed along to consumers in the form of higher prices—is a good idea, especially if it also includes a provision to tax companies on a territorial rather than global basis. As it stands, U.S. corporate rates are not only among the highest on the planet, our government taxes American companies on all profits, regardless of where they are earned. American companies get a credit for taxes paid abroad but they also get a bill for the difference between foreign taxes paid and what the U.S. government says is theirs. That's one reason why companies as diverse as Burger King and Apple park so much of their profits or operations overseas. It's to avoid high domestic rates.

For a number of reasons, I'm not a fan of border-adjustment taxes. For starters, the scheme is incredibly complicated and does nothing to effect the simplification of taxes, which should be part and parcel of every tax reform. Beyond that, it's of a piece with the GOP's growing and stupid protectionist posture to "make America great again" by making life more difficult and expensive for most people. So much produce and so many consumer goods come from abroad any tax hike on them will pick your pocket at Best Buy, Walmart, and Kroger. And while proponents claim the import tax will be mostly paid for by non-taxation of exports and a strengthened dollar (like I said, incredibly complicated), at this point in time, the only acceptable policy all the way around is to cut tax rates and then pay for the trims by reducing spending even more. It's not as if we have deficits and debt because we're not raking in enough dough, after all. It's because we spend too much.

With very few exceptions, the hallmark of the Trump presidency (what are we, like three weeks in?) seems to me to be insularity. His policy-making operations are unpredictable and unknowable and he doesn't want to have to explain himself. He wants to keep foreign people and goods out of the country. The Republican Party seems extremely happy to play along with all that, especially if its longstanding grudge against immigrants gets taken care of and dollars continue to flow to old people in the form of non-diminished spending on Social Security and Medicare. Free markets might have once been part of the GOP catechism but it seems to been left out of the latest edition of the prayer book. To the extent that Trump and the Republicans insist on closing ranks, closing borders, and closing trade, they absolutely represent a dead end (the Democrats are not any better in this regard, to be sure). We live in a world of forced transparency, where closed systems are increasingly giving way to open ones. Power, meaning, and population are being democratized and dispersed via technology and changes in mind-set and temperament even in the face of Islamic terrorism and other reactionary forces. Political alliances predicated upon exerting more and finer control over what is allowable will be among the biggest casualties. There's a reason neither the Republican nor the Democratic candidate for president won a majority of the popular vote: Nobody much liked what either one stood for.

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  1. The GOP is the Stupid Party after all.

  2. I just want to thank Nick for keeping his point under 10,000 words and avoiding any cringey pop-culture references.

  3. Cutting corporate taxes?which are mostly passed along to consumers in the form of higher prices

    Um…

    1. I’m sure he means that the corporate taxes themselves is passed along to consumers in the form of higher prices, not that cutting them would lead to higher prices.

      1. Why this isn’t more widely acknowledged on the left beggars the imagination. Our corporate masters are ruthless in their greed, but too stupid to raise prices and cut wages to accommodate the corporate tax.

        1. Well there is too much anti-corporatism and anti-capitalism on the left generally. In their view corporate taxes are a way to “punish” corporations. It doesn’t matter that the taxes only end up punishing consumers. It’s just an anti-corporate gesture that ends up harming people.

        2. Well, it’s not like there are any academic studies that show reductions in the corp tax rate leading to higher wages or anything. None at all.

        3. Why this isn’t more widely acknowledged on the left beggars the imagination.

          All this riff-raff begging in your imagination. Implement some imaginary SS in your head to run off the beggars and get the trains running on time.

          Wondering how exactly the left misunderstands economics is akin to wondering what it feels like to be drunk while refusing to consume alcohol (despite it being available everywhere). If you really want to understand, liberally apply hammer blows to your cranium until you can’t remember what a supply curve is.

      2. My brain is going. Read that five times and didn’t see that.

        *takes a shot of bourbon*

        1. Must be nice to be able to drink on the job. 🙂

        2. Lets count the mistakes. We begin with a needless voucher. The fact that the writer is saying it necessarily implies that he thinks that. So the “I am sure” is utterly superfluous. Then we move on to redundancy. The corporate taxes are whatever they are. The word “themselves” is redundant. Then we have improper subject verb agreement in the independent clause. “Corporate taxes” are whatever they are not “is”. Why anyone would think the author thinks that cutting taxes would cause higher prices such that it is necessary to explain that is something that is beyond me as well.

          As far as your point, I am not sure what you meant. If you meant that not all taxes are passed along to consumers and that some portion of them results in lower profits or strategic behavior to avoid them altogether, you are correct.

          1. Are you really parsing and criticizing my grammar on a 5-second Internet comment post?

            Don’t you have some ambulances to chase or something?

  4. For a number of reasons, I’m not a fan of border-adjustment taxes. For starters, the scheme is incredibly complicated and does nothing to effect the simplification of taxes, which should be part and parcel of every tax reform they violate the NAP

    de-cosmo’d

  5. With very few exceptions, the hallmark of the Trump presidency (what are we, like three weeks in?) seems to me to be insularity. BUT OBAMA WAS WORSE

    His policy-making operations are unpredictable and unknowable and he doesn’t want to have to explain himself. BUT OBAMA WAS WORSE

    He wants to keep foreign people and goods out of the country. BUT OBAMA WAS WORSE

    The Republican Party seems extremely happy to play along with all that, especially if its longstanding grudge against immigrants gets taken care of and dollars continue to flow to old people in the form of non-diminished spending on Social Security and Medicare. BUT THE DEMOCRATS ARE WORSE

    Free markets might have once been part of the GOP catechism but it seems to been left out of the latest edition of the prayer book. BUT DEMOCRATS ARE WORSE

    am I doing it right?

  6. The other, and grossly underreported, part of this is that the primary reason that Republicans are pushing this idea is to “pay for the corporate tax rate cut”.

    Could we get a Reason article (its worth way more than the half a sentence aside in this piece) about how they should just cut the corporate tax rate already and spur on business in the US WITHOUT falling for the progressive tactic that tax cuts have to be PAID FOR because of course all money first and foremost belongs to the government?

    Maybe it could be mentioned that the OMB and Congressional Budget Office measure taxation in an absolutely absurd and ridiculous way….

    1. The GOP has already conceded this point to the Democrats.

      1. Yes and no. They “concede” this point when it is convenient to object to something their voters want but their corporate backers do not. Claiming that this is necessary to cut corporate tax rates is just a poison pill for both proposals. If they wanted to do either one, they would just do it and would magically forget all about the need to “pay for tax cuts”.

      2. They have to craft a substitute tax to replace the tax they want to repeal.

    2. The other, and grossly underreported, part of this is that the primary reason that Republicans are pushing this idea is to “pay for the corporate tax rate cut”.

      Well yes and no. They are pushing it to pay for the corporate tax cuts, yes. But it seems to me, they are also pushing it as a way to appease Donald’s protectionist sensibilities, with the idea that if the nominally free-trading Republicans push this border-adjustment tax deal, it will forestall Donald pushing some bigger insane trade war nonsense.

      1. Oops, HTML tag fail. That should be italic, not strikethrough.

      2. TRADE WAR!!! You see trade wars are insane and destroy the entire world economy. And that is why every country in the world has a hair trigger and will immediately start one at the slightest provocation.

        1. I wish we could provoke China into a trade war so they’ll dump even cheaper goods on US markets.

          1. We run a huge trade surplus with China. So, they have a lot more to lose in a trade war than we do.

  7. Power, meaning, and population are being democratized and dispersed via technology and changes in mind-set and temperament even in the face of Islamic terrorism and other reactionary forces.

    Yeah Nick, that is why Trump’s travel ban was so unpopular. I mean I bet Nick doesn’t know a single person who supported it. I would call him Pauline Kael except that Kael for all of her backwardness, was a really good writer, which is something you can’t say for Nick.

  8. Seems to me that taxing consumption is a better idea than taxing production and investment.

    1. That would be nice.

    2. Seems to me that taxing is bad idea all around. Let’s tax only to the extent that we need to fund the necessary functions of government, and no more. Keep the tax uniform, and stop worrying about who, how or when the tax hits.

      It’s like I tell the drooling Georgists, “It’s not about taxing the land, it’s about cutting the taxes!”

      1. stop worrying about who […] the tax hits

        That’s cute.

    3. Yes, and that’s exactly what the border adjustment does. Without border adjustment, it’s a tax on production and investment to tax cash flow in such a manner. If you want to transform a cash flow tax from a tax on production and investment you have to rebate exports (which aren’t consumed in this country) and tax imports (which are consumed in this country) at the same time as you tax other domestic cash flow.

      If you think that tax consumption is a better idea, then you prefer the border adjusted version of the cash flow tax to either the non border adjusted version or the corporate income tax.

      Now, I will grant that the tax is being sold and advertised by making (false) protectionist claims, and that’s a big problem. I will even understand people who then oppose it on the basis of that mendacity. But it is 100% necessary to border adjust to make it a consumption tax. That’s why all VATs are border adjusted. (What makes this not a VAT is that labor costs are also deducted, a different issue.)

      1. That’s my read on this too. I think reason and the flat income taxers have been very disingenuous on this topic. The current code penalizes domestic production and subsidizes importation. Usually libertarians disfavor subsidies.

    4. How about we tax wealth instead of income?

      That’s primarily what all those government guns are protecting. Property.

    1. Obviously Trump did not cause the ObamaCare death spiral. But, I do think Trump and Republicans really do have to do something about ObamaCare, sooner rather than later.

      People do need to be able to make plans on their health insurance choices for next year.

      1. Sometimes you remove a tumor through surgery. Sometimes chemotherapy. But sometimes, you have to introduce an even more aggressive cancer to kill it.

        But not everyone was buying it. Sen. Rand Paul (R-Ky.) left before it was over, having heard enough of a conversation that he says centers around keeping Obamacare’s Medicaid expansion intact and creating tax credits that he called a “new entitlement program,” though a Republican in the room rebutted the notion that the topic of Medicaid expansion came up in the Tuesday meeting with Ryan.

  9. creating tax credits that he called a “new entitlement program,”

    Oh my dear Lord. They can’t really be that stupid, can they?

    1. sorry that was meant to be a response to commodius. Guess my cold is getting to me today. 🙁

  10. Nick, I don’t know if it’s a good idea, but calling the border adjustment “protectionist” is wrong. It’s pretty simple: the destination decides how it’s treated. Any goods sold here will be subject to the tax, regardless of where it’s produced.

    Made out of the country, sold here? It gets the tax. Made HERE, sold here? ALSO subject to the tax. It doesn’t cause imports to be disadvantaged relative to domestic products sold here. And it doesn’t tax exports because they’re sent to other countries with their own tax regimes. If those countries tax our products, they’re subject to taxes there.

    While I do want to reduce taxes overall, it seems to me that the current regime actually taxes domestically-produced goods sold here worse than goods we import are treated, which is unfair to domestic producers. This aspect of the GOP proposal merely treats domestically sold goods the same regardless of where it’s from. It may indeed be the wrong reform to make, but it’s not protectionist and at least the border aspect isn’t complicated .

    Here’s an (actually useful!) Vox explainer, and here’s a Tax Foundation piece about the whole thing.

    1. That is a very good explanation. I think Nick just doesn’t really know much and thus doesn’t understand this scheme. You are right, it is not protectionism. Either that, or he is just doing the bidding of corporate donors to reason who benefit from the current system.

      1. To be fair, even the GOP and Donald Trump characterize it in a protectionist fashion. It’s not surprising that the administration has no idea what it actually does. Some people think this is deliberate by the proposal’s biggest proponents to get wider GOP support. There’s more to the proposal than the border-adjustment so this bit is easy to overlook.

        1. *a deliberate ploy

        2. Yes, it’s being sold in a protectionist manner, and that deserves some fault.

          The current tax is an income tax. A cash flow tax without border adjustment is a cash flow tax. A cash flow tax with border adjustment is a consumption tax.

  11. Wait, wasn’t Reason just pushing “border adjustments” as a way to fight global warming?

  12. Nick’s anti-gummint screeching has shot himself in the foot.
    Again.

    Only a Marxist would say that taxes are passed along as higher prices to consumers.
    Prices are established by interplay within the Law of Supply and Demand … not by costs as claimed by Marx.
    But the commentariat swallowed it on tribal loyalty.

  13. Free markets might have once been part of the GOP catechism but it seems to been left out of the latest edition of the prayer book.

    Corporate limited liability
    Government monopolies in “intellectual property”
    Differential tax treatment for wages and capital gains
    Tax on income instead of property
    Violation of Lockean Proviso

    A lot of rage against violations of the free market. Except when it helps those who Own over those who Labor.

    1. Benjamin Tucker’s critique of Herbert Spencer in 1884 could applies to Reason and their “free market” love:

      It will be noticed that in these later articles, amid his multitudinous illustrations (of which he is as prodigal as ever) of the evils of legislation, he in every instance cites some law passed, ostensibly at least, to protect labor, alleviate suffering, or promote the people’s welfare. He demonstrates beyond dispute the lamentable failure in this direction. But never once does he call attention to the far more deadly and deep-seated evils growing out of the innumerable laws creating privilege and sustaining monopoly. You must not protect the weak against the strong, he seems to say, but freely supply all the weapons needed by the strong to oppress the weak. He is greatly shocked that the rich should be directly taxed to support the poor, but that the poor should be indirectly taxed and bled to make the rich richer does not outrage his delicate sensibilities in the least. Poverty is increased by the poor laws, says Mr. Spencer. Granted; but what about the rich laws that caused and still cause the poverty to which the poor laws add? That is by far the more important question; yet Mr. Spencer tries to blink it out of sight.

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