The Republicans in the House have suggested to overhaul the tax code with a “border-adjustment” proposal, but it has caused a massive split with companies before anyone has even drafted legislation.
I brought up this proposal when President Donald Trump explained that he would make Mexico pay for a border wall by placing a 20% tax on imports because it mirrors the House GOP’s plan. I also mentioned how these plans will screw the consumer and businesses have started speaking out against it:
Some retailers and other big importers doubt the dollar would rise that much. They warn of tax bills that would exceed profits, forcing them to pass costs to consumers. Some are in the early stages of working on an alternative plan they can present to lawmakers, says a person familiar with those plans.Cody Lusk, president of the American International Automobile Dealers Association, says his members are shocked that a Republican Congress is proposing a 20% tax on imports.“We view this as a very, very serious potential blow to the auto sector and the economy,” says Mr. Lusk, whose members sell Toyotas, Hondas and other cars from foreign-headquartered companies.He likes aspects of the House plan, “but when we look at the whole, I don’t think the juice is worth the squeeze.”
Because it’s a tariff!!
Even Steve Forbes blasted the idea of the border adjustment:
“The Republicans are proposing this crazy tax. They’re going to punish American consumers over $100 billion a year” over 10 years by making goods coming into the U.S. more expensive, Forbes told CNBC’s “Squawk Box” on Wednesday. “And these are Republicans doing it.”The people who would be hurt most by the border tax would be middle-class workers who elected Donald Trump as president, Forbes said. “Economically it’s wrong. Politically it’s wrong.”
I have no idea why people complicate economics when it’s all very simple. The businesses need to make a profit in order to keep running and providing goods to consumers. If the business has to pay more in taxes then it has to raise prices in order to make a profit.
Therefore, it hurts the consumer. Not freaking complicated.
Of course, those who support the tariff (IT IS A TARIFF) say that those burdens “would be offset by an increase in the dollar’s value due to the policy, thus negating the need for the importers to hike prices for consumers.” Forbes once again brings them down to Earth:
“So now these Washington politicians are becoming currency swap traders and experts. It’s preposterous,” said Forbes. “[Also] people forget in Washington we have these elaborate global supply chains. You’re going to disrupt all of that and you don’t know what the consequences are.”
The Wall Street Journal report I cited in my article also noted that the “sharp shift in the dollar could unsettle markets, hurt investors with holdings overseas, and change the Federal Reserve’s calculations about interest-rate decisions.”
Sorry, as a consumer I do not want to take that risk. Plus, who knows how countries would react:
Tax experts are puzzling over how to describe who wins and loses from border adjustment. One thing is clear, economists say: If the dollar goes up 25%, U.S. holders of foreign assets—including pension funds and endowments—would suffer a one-time loss in wealth of more than $2 trillion.There 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.
The Financial Times also reels in the GOP from fantasyland. If the dollar does adjust, it will not happen overnight. The adjustment could takes years, “historically been about a five-year lag between a current account shock and a full adjustment in the real effect exchange rate.” The article continued:
Prices tend to be sticky, particularly when 93 per cent of US imports and more than 40 per cent of global trade is invoiced in US dollars. These prices would have to be renegotiated over time. Furthermore, the Federal Reserve and the People’s Bank of China would do their best to lean against such a currency move.
This means the costs will burden the consumer.
Stephen Moore, a Heritage Foundation economist who advised Trump, told an event on Tuesday he doubts this bill will go anywhere:
“I think it’s a distraction,” Stephen Moore said Tuesday at an event hosted by Bloomberg BNA.Moore, who was involved in writing Trump’s campaign tax plan but does not have job in the administration, said he supports the the House Republicans’ “border-adjustment” proposal because he thinks it “takes tariffs off the table.” The proposal is part of the House GOP tax-reform blueprint.But he noted that other Republican thought leaders don’t support the concept, and said it’s a “pretty prickly issue.”
Takes tariffs off the table? It is a tariff! It’s a tax on imports. Anyway, hopefully Moore is correct.
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