Border Tax Will Raise Prices on Daily Purchases
The Columbus Dispatch March 13, 2017
Since the election, the president and Congress have focused on tax reform as a means to "Make America Great Again." Unfortunately, one idea being proposed, the border adjustment tax ("BAT"), will only "Make America More Expensive."
The idea behind the BAT is to impose a tax on imports to the U.S. while granting a credit to U.S. exporters. The BAT was initially proposed as a means to increase employment in domestic manufacturing by making imports more expensive through taxation in hopes of encouraging domestic production and increasing jobs in manufacturing. Additionally, as the argument goes, export tax credits would further spur domestic production because of the lower tax burden. Some economists also claim that implementing the BAT will lead to a higher-valued dollar, thus neutralizing the import tax because imports will be cheaper when purchased with the pricier dollars.
The goal of increasing domestic manufacturing employment is laudable. However, the likelihood of increasing employment in domestic manufacturing to the levels proponents use to justify the BAT frankly is low. Rather than hiring new employees, many businesses are opting to use automation as a means to increase efficiency. Studies show that since the end of the Great Recession of 2008, the U.S. is manufacturing more than ever with fewer workers. Homegrown automation, robotics, 3D printers and artificial intelligence, not imports, are the greatest threats to U.S. manufacturing jobs.
At the same time, a large portion of our economy is directly tied to imported equipment, goods and services. The U.S. imports around $2.5 trillion worth of goods yearly, including food, machinery and equipment, oil and petroleum products, computers and electronics, cars and trucks, telecommunications equipment, pharmaceuticals, and consumer goods such as clothing, shoes, cellphones, televisions and more. Many U.S.-based manufacturers rely upon imported equipment and raw materials, and many U.S. jobs are tied to imported products, as well — from dock workers and fork-lift operators, to truckers, retail workers and supporting service-sector jobs. The BAT could place at risk many good-paying American jobs.
The BAT simply will increase the price that Americans pay for all of these goods while doing little to nothing for employment in domestic manufacturing. In reality it would essentially function as a $1 trillion national sales tax, driving up the prices of everyday necessities. Estimates indicate that the BAT could cost the average family $1,700 per year. There is no other way to say it: This is a massive tax hike on American consumers.
Proponents also claim that passing the BAT is the only way to fill the void left by income-tax cuts for corporations and individuals. This is a flawed strategy meant to replace lost income-tax revenues with what is essentially a regressive tax on consumption. Corporations and the highest income earners would benefit the most from the lower income-tax rates. Meanwhile, the BAT would be paid by American consumers, affecting low- and middle-class families to a significant degree.
Moreover, the idea that the BAT will lead to a higher-valued dollar relative to other currencies is not a given. Exchange rates are affected by a number of complex factors, including relative rates of inflation, differences in interest rates, trade balances, public governmental debt, trade terms, political stability, economic performance and psychological factors. The president proposes large increases in spending for the military, domestic infrastructure and other Homeland Security programs while safeguarding Social Security, Medicare and other programs. The likelihood of deficit spending and inflation is high. The likelihood of international political instability and trade wars is high.
Predicting how well the dollar or the U.S. economy will do is a crapshoot. However, one thing is certain, the BAT will immediately raise the price of practically everything Americans buy every day without giving Americans any corresponding pay raise.
Hopefully Ohio's congressional representatives will reject the BAT and protect Ohio's working and middle classes from a massive tax on consumption that will do little to increase domestic manufacturing or to lessen the tax burden on working people.