Browsing the blog archives for February, 2017.

The Border Adjustment Tax

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Paul Ryan and leaders in the Republican House are proposing a border adjustment tax as part of their tax reform package. There is some merit to the idea, but problems as well.

What is a border tax anyway? I’ll borrow Investopedia’s definition: “A border adjustment tax is a short name for a destination-based cash flow tax (DBCFT). It is a value-added tax levied on imported goods. It’s It is also called a border-adjusted tax, border tax adjustment or destination tax. Exported goods are exempt from tax; imported goods sold domestically are subject to the tax.

If you just read the definition and find it too complicated, then you might understand why President Trump prefers a simple tariff. But the debate doesn’t end there.

The Republican House plan for a border tax seeks to reverse tax incentives for U.S. companies to import goods from other countries. A border tax is a quasi-tariff, and it will raise the price of the imported goods. The healthy, kneejerk response to any tax increase is to oppose it, but there are other reasons to be wary of a border tax as well.

A border tax would introduce a value-added tax (VAT) mechanism into our taxing regime. A VAT requires firms to remit taxes based on the value they add to raw materials, taxes that are eventually passed along to consumers, but are embedded in the price. For example, a TV that would cost $1000 without a VAT would cost $1200 with a $200 VAT. Consumers would only see the $1200 price and few would feel the tax. It’s like buying gasoline at the pump. The price includes federal and state taxes, but it doesn’t feel you’re paying a tax because you only see one price. In fact, most consumers have no idea how much they are paying in fuel taxes. Like the gas tax, a VAT at the border would quietly transfer higher prices to consumers.

But dismissing a border tax proposal on this basis alone is shortsighted. Proponents of a border tax argue that exports from other countries have an unfair tax advantage because their governments refund the VAT when products leave the country. The US tax system is not VAT-based, and corporate taxes are not reduced for exports. They have a point here. I do not support taxes or trade regulations designed to give US companies an export/import advantage because they force US consumers to buy inferior goods and services. Besides, tariffs and other import restrictions encourage our trading partners to respond in a like manner, which harms everyone. However, I do favor intervention that addresses legitimate trade unfairness, such as when foreign governments subsidize their companies or fail to enforce intellectual property protections for US companies. To the extent that a border tax addresses tax unfairness inherent in the US tax code, it’s worth vetting.

Perhaps you didn’t expect this argument from someone with a strong libertarian bent. The truth is that ALL taxes raise prices or reduce income. Governments have legitimate expenses, so taxes cannot be avoided altogether. Our tax system should be as simple, transparent, and fair as possible, and sometimes it’s impossible to have all three. While I am not excited about a border tax, IF it is balanced with a much lower, simpler corporate tax regime, the overall package could be a step forward.

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Kim Strassel @ UNCP

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Kim Strassel was on the UNCP campus yesterday (https://youtu.be/OA5eOZse05Y) addressing threats to individual, corporate, and political speech. Strassel recently penned—and I just finished reading—The Intimidation Game: How the Left is Silencing Free Speech. It’s a great book that chronicles efforts to silence corporations, nonprofits, executives, board members, professors, and anyone else whose point of view challenges the left wing orthodoxy.

After the presentation, several students expressed surprise that the lives of individual Americans and their families can be destroyed by government bureaucrats and political activists simply because they dare to express the wrong point of view or choose to contribute financially to the wrong organization or candidate. This just shouldn’t happen here, but it does.

It’s difficult to hear Strassel speak or read her book without getting angry. I’m appalled at the IRS-nonprofit scandal, Brendan Eich’s demise at Mozilla, and Obama’s grilling of Frank VanderSloot. Rather than debate ideas on their merits, the abusers in these cases bullied, manipulated, and intimidated. This isn’t how America is supposed to work.

The implications of the intimidation game are legion, from politics to business to academe. As a university professor, I understand and cherish the importance of free expression without the threat of reprisal. While respect and a sense of humor go along way when discussing contentious topics, none of us have a right not to be offended. The college experience should teach us how to respond to different views directly. “Safe zones” may be well intended, but they shield students from intellectual development.

The past eight years have been filled with Obama and Democrat abuses, I’m sure there are some Republicans in Washington who would love to get even. Strassel’s book is a wakeup call for anyone who thinks our first amendment rights are eternally secure. Let down your guard at your own risk.

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