Commentary: Why border adjustment tax is a bad idea that just won’t die

The world is a much different place than it was 30 years ago — the last time our tax code received a major overhaul.

The United States is facing stiff competition from other nations in an increasingly global marketplace, where our comparative advantage is significantly diminished by the highest corporate tax rates in the developed world. Bringing our tax rates in line with worldwide norms — among other reforms — will help keep and grow American jobs and our economy.

Unfortunately, other proposals being seriously considered, like the so-called border adjustment tax, which would serve as a national sales tax on imports. It would have the exact opposite effect and hurt not only Texas employers and workers but every consumer and family in the U.S.

President Donald Trump and Congress have a unique opportunity to overhaul our current system of taxation to ensure fairness, eliminate loopholes and make America a more competitive and attractive place to do business.

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Real, comprehensive tax reform addresses the disease — U.S. tax rates put businesses at a disadvantage — rather than the symptoms: businesses have chosen to locate overseas. Rather than punishing businesses that leave the U.S., a smart tax reform package that cuts corporate, small business and individual tax rates would lead to broad-based economic growth.

When it comes to cutting taxes, Republicans have historically preferred offsetting the cost of any tax cuts with corresponding reductions in government spending. This makes the most sense if tax reform is to be a vehicle to grow our economy, especially when considering our world-leading corporate tax rates and the massive amount of waste in the federal budget. To that end, it is troubling that Republican leaders in Congress are advocating for a massive tax hike on consumers to pay for corporate tax reform.

The border adjustment tax, a linchpin of House Republicans’ tax reform blueprint, would levy a 20-percent tax on all imports into the U.S., while giving exporters a tax credit. Because a border adjustment tax would raise $1 trillion in new revenues, at first glance it’s a very attractive way to pay for the cost of tax reform. But a closer look reveals that a border assessment tax is really a consumer tax on everything — from gasoline to groceries to clothing and other products that Americans purchase and use every day.

What that means is that retailers and small-business owners will have no choice but to pass a border adjustment tax on to consumers. As a result, the average family could end up spending more than $1,700 per year for everyday goods. Low-income families would be especially hard-hit as they spend a disproportionate amount of their income on daily staples that would be hit hard by a border adjustment tax.

As Gov. Greg Abbott shared in a series of commentaries recently, 2.4 million small businesses drive the Texas economy and compose 98 percent of all businesses in Texas. We employ nearly half of all private-sector employees in the state. Self-employed entrepreneurs and small business employers create an annual economic impact of $1 trillion. Harming small businesses and forcing consumers to pay for corporate tax cuts by increasing their taxes is not what we voted for in 2016.

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Tax reform can and should be paid for by cutting government spending, not by robbing Peter to pay Paul. Proponents of a border adjustment tax will argue that the dollar will rise once it’s implemented and increase consumer spending power. But that purely conceptual view ignores the realities of global economics: Even if other nations don’t retaliate against the U.S. for implementing a border adjustment tax — which is highly unlikely — it could still take years for the dollar to appreciate to the level needed to offset the tax’s impact. Without question, however, is that consumers, small businesses and the poor will suffer from immediate price increases.

Americans voted for and demanded change in 2016. As such, if Republicans in Congress respond to those voters who felt abandoned and ignored for too long with a costly new consumer tax in 2017, they will likely face a populist revolt of their own making in the 2018 elections.

In contrast, if Republicans can focus squarely on cutting tax rates and spending without imposing a costly border adjustment tax, comprehensive reform and the economic benefits it would provide will serve as tangible proof that voters made the right decision during the last election.

Barreiro is owner of Clay Imports in North Austin.

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