Do We Want The Tax Code To Prioritize Job Exporters – Or Job Importers?

Published February 9, 2017

I loathe taxes.  I loathe the concept of anything or anyone having mandated access to the money I earn.  They didn’t get up at 4:10am to go to the gym – so as to be able to begin work at 6am.  Day after day, every day – for years and years.  Why do they get a huge and growing chunk of any resulting coin?  It is offensive.

My late grandfather felt…similarly.  (Is this genetic?  I’m betting it at least partially is.)  If you mentioned the Internal Revenue Service in his presence, he would immediately spin to you and with a steely gaze hiss “They’re not the IRS – they’re The Assassins.”  And he wouldn’t let you call them anything else.  He wasn’t wrong (ask the Tea Party).

On this I am totally with the Libertarians – taxation is theft.  But I am a Realist.  In the panoply of evils – taxation is a necessary one.  It is absolutely not necessary in the omni-directional ways and at the confiscatory levels at which it currently exists.  But my organization is called Less Government – not No Government.  We need some government (Hello, Constitution – and its curtailed, delineated limits).  So we need some taxes.

The question then becomes – how to tax?  Taxation being theft – it damages the things subjected to it.  We Realists understand dynamic analysis – that government actions have private sector reactions.  And we Realists understand human nature.

It is we Realists who observe government for decades taxing people who work and paying people who don’t work – and are not surprised by a persistent perpetual underclass of people not working.  Even the Left occassinsaly cops to the effects of government action.  As demonstrated by their incessant pushes to tax all daylight out of cigarettes and sodas – to get people to stop purchasing them.  (That is allegedly their intent – of course they don’t in the slightest mind all the additional government money taken thereby.)

So we know government taxation affects human behavior.  Because…human nature.  An empirical truth yet again demonstrated by a totally bass-ackwards portion of our federal tax code.

The Feds have for years taxed all daylight out of products manufactured here – and then exported to the rest of the world.  While simultaneously not taxing at all products manufactured anywhere else in the world – and then imported here:

“To illustrate, assume that of the $4M X Co. spent to produce the inventory it sold during the year, $2M of that inventory was imported from overseas before ultimately being sold to U.S. consumers. That $2M would be deducted from taxable income as part of cost of goods sold in the above example, giving the corporation a $700,000 benefit ($2M * 35%).”

How have we humans responded?  In thoroughly unsurprising fashion:

“Perhaps the more pressing issue, however, in light of the recent run on corporate inversions — in which U.S. corporations move offshore through the use of a foreign holding corporation — is that the current tax system and its burdensome 35% rate encourages corporations to flee the U.S. in search of lower taxes. The system…further encourages such behavior by providing a tax deduction for imported goods.”

Shocker. Government says they want domestic production – but they really don’t.  Their taxation deeds belie them.

This is Reality.  If I invite you into my house – and then beat you about the head and shoulders with a bat – I should at least have the decency to not act surprised when you get up and leave.

So we need massive tax reductions – our 35% corporate tax is the world’s highest.  And we need transformational tax reform – that rids us of these sort of perverse, America Last incentives.  A huge improvement on both fronts – will be the Border Adjustment Tax:

“Under (this) tax reform, this system would not tax the exports of American companies, but would tax the gross value of any imports into the country. The new rate of tax on corporations is expected to be 20 percent, so that would also be the de facto rate of tax on imports.

“U.S. companies would immediately be on equal footing with their international competitors, the great majority of whom benefit from territorial taxation and border adjustability today.  American firms would be further advantaged by tax reform’s low 20 percent tax rate on corporations (down from a global high 35 percent today), and full business expensing of asset purchases (replacing multi-year depreciation deductions).

“Instead of taxing exports and not imports, we’d be taxing imports and not exports. Instead of reading about corporate inversions and outsourcing, we’d be reading about jobs and firms moving into the U.S. to take advantage of the favorable tax rules here.”

The Border Adjustment Tax lowers the tax rate from 35% to 20%.  That is a very good thing.  And it revolutionizes the incentive effect of government.  Gone will be the impetus for mass American business exodus – replaced by a distinct advantage for businesses operating within our borders.  Another very good thing.

A massive win-win for We the People.  Which is what nigh always happen when we acknowledge human nature – and the effects of government on it.

So let’s do this, shall we?

[Originally Published at RedState]