It’s no secret that America’s finances are in serious need of reform, and many free-market conservatives have hoped that the new Administration and Congress represent a way to get long-needed tax reforms to lift the burden on business, allow the economy to grow, and cut and simplify taxes for everyday Americans.
Instead, Congress is considering a plan that could simply shift the burden from corporations to consumers.
{mosads}This plan is known as a Destination Based Cash Flow Tax (DBCFT) and could raise around $1 trillion in new revenue by taxing imports and exempting exports. In other words, corporations would not be able to deduct import costs, but export revenue could be written off.
Retailers would see massive, immediate changes that they say could be pushed onto the consumers, who would then have to pay much higher prices on common goods.
To hear defenders explain it, though, retailers who have been sounding the alarm are simply wrong or overreacting. Other corporate tax cuts will make up for the loss, and a strengthened dollar will prevent consumers from feeling the pain.
Well, maybe.
Even under the dubious assumption that this adjustment occurs instantly and painlessly, there will be a major impact on American business, as Stan Veuger recently wrote for the American Enterprise Institute. As Veuger points out, border-tax defenders cannot simply ignore real harm that could come to certain sectors such as pension funds or American-owned overseas assets as a result of non-market-driven dollar appreciation.
These concerns, of course, do not even include questions of protectionism – which Republicans, remember, used to oppose, and where supporters of the plan seem to want to have it both ways.
The defenses here have at times beggared disbelief. It’s not a tariff, really, it’s not – except when Presidential press secretary Sean Spicer nearly sparks a national avocado panic by calling for a “30% tariff on Mexico” to pay for The Wall, in which case: Calm down everyone, it’s just the border tax he’s talking about.
Defenders will argue that this change simply puts us on equal footing with the rest of the world and their VATs, while loudly and repeatedly assuring us that dollar appreciation will cancel out any pain to consumers – ignoring, meanwhile, that this very same dollar appreciation could also likely offset competitiveness gains.
And that’s not to mention the very real possibility of butting up against U.S. commitments via World Trade Organization agreements.
Supporters of this tax plan cannot have it both ways and should be honest about what we’re dealing with. In short, one does not envy GOP leadership, who must somehow balance long-desired tax reform with a President who wants protectionism but many in their caucus who do not – and all of it must somehow be paid for, to avoid running up a deficit, but also avoid hiking taxes.
If only there were another option.
The United States is teetering on the edge of a $20 trillion national debt, while Congress stumbled through yet another budget season where inability to finish the process resulted in last-minute, temporary spending packages passed under threat of shutdown.
In this environment, cutting any spending becomes next to impossible, but things are different now – or, at least, they should be.
Over the last several years, Republican leadership has repeatedly called for important structural changes that would allow Congress to actually follow its budget process, but now that a new administration is in power, there is actually a chance to accomplish this reform. Leadership cannot lose sight of how important these reforms are in its newfound hurry to push through policy by Reconciliation or Presidential pen.
More importantly, it would be a huge mistake to ignore obvious opportunities to cut spending, such as in the annual Government Accountability Office reports that show billions in fragmentation, overlap, and duplication.
At this point, one can almost hear Congressional staffers scolding on how difficult it truly is to cut any spending, and of course they are right. But in a more practical sense, it’s time to buck up and push on anyway.
If the president of the United States can Bull-in-a-China-Shop his way directly into Lockheed’s nationwide entrenched interests by repeatedly attacking F-35 costs, there is little to no excuse for Republicans to fear repercussions from targeting obvious waste.
Debates over tax policy will rage on as policy staff and talking heads twist themselves into ever-tighter knots to defend a troubling tax policy, but don’t let anyone tell you that there are no better options.
Jonathan Bydlak is the founder and president of the Coalition to Reduce Spending.
The views expressed by this author are their own and are not the views of The Hill.