President Donald Trump is hopeful lawmakers will step up to the plate this summer and craft a tax reform bill before August, White House press secretary Sean Spicer told reporters in March, after the Republicans’ Senate leader cast doubt on any action occurring in 2017.
At an event hosted by Politico on March 9, U.S. Senate Majority Leader Mitch McConnell (R-KY) said tax reform may be delayed until 2018.
“I think finishing on tax reform will take longer, but we do have to finish the health care debate—up or down, win or lose—before we go to taxes,” McConnell said. “It is complicated.”
Asked on that day about McConnell’s comment, Spicer said tax reform was a priority for the president, confirming the president hoped to sign a tax bill by August.
“I think we feel very confident that we’re going to get a lot done—continue to get a lot done this year,” Spicer said. “Tax reform is high on the president’s priority list. I think it’s high on the American people’s priority list.”
One proposal under informal consideration by the president and lawmakers was first floated by House Speaker Paul Ryan (R-WI) in 2016 as part of the House Republican Tax Reform Task Force’s “Better Way” blueprint.
Ryan’s proposal includes partially replacing taxes on international businesses’ profits earned in other countries with a border adjustment tax (BAT) on imported and domestically produced goods.
VAT’s American Cousin?
Gordon Gray, director of fiscal policy for the American Action Forum, says BAT is similar to a value-added tax (VAT), a policy used in many European countries.
“It’s similar, to a degree, to a VAT,” Gray said. “It’s not a novel system in concept, but it would be a dramatic departure from how the United States currently raises revenue. You determine that your tax base is domestic consumption. The way you do that is that you exclude exports from taxation and you include imports. That focuses on a fairly immobile tax base, then you set the rate and raise revenue.”
Keeping American Businesses in America
Gray says a BAT would encourage businesses to keep their main offices in the United States or move here from other countries.
“This arrangement would actually incentivize headquartering in the United States,” Gray said. “It removes the current incentive to headquarter overseas and set up transfer-pricing shenanigans, which shift income overseas. If you want to do business in the United States, those transactions will be taxed here. It removes the current incentive to build a factory in China and—through a foreign subsidiary or a license agreement—ship those goods here.”
Predicts Little Effect on Consumers
Gray says consumers would be largely unaffected by BAT.
“It does actually alter the cost structure of a given import, but it doesn’t fundamentally change the price,” Gray said. “The border adjustment will not alter the trade balance, per se. It’s not a trade policy; it’s a tax policy.”
Sean Lansing, chief operating officer for Americans for Prosperity, says the BAT is a bad idea for consumers.
“The reality is that [BAT is] nothing more than a $1.2 trillion tax on the American people,” Lansing said. “It’s going to increase the costs of goods and services across the board, everything from gas to groceries to diapers—you name it. It’s going to result in higher prices for Americans. Call it for what it is. A border adjustment tax is a euphemism.”
The government should tax importers and exporters equally, instead of favoring one over the other, Lansing says.
“The government shouldn’t be picking winners and losers,” Lansing said. “It’s no different in this instance, especially when they’re doing so at the expense of taxpayers. They are once again giving special favors, handouts, carve-outs to big business, to corporations, at the expense of taxpayers. That’s unacceptable.”