Border Adjustment Tax – The Republican Tax Sham

Is the Border Adjustment Tax going to make the rich richer or will it even the competition?

March 11, 2017

Watch your wallets. Republicans are pushing a new corporate tax plan that will end up costing most of you a bundle. Here’s what you should know about the so-called “border adjustment tax.”

The U.S. imports about $2.7 trillion worth of goods a year. Many imports are cheap because labor costs are much lower in places like Southeast Asia.

Our current tax code taxes corporations on their profits. So, for example, when Wal-Mart buys t-shirts from Vietnam for $10 and sells them for $13, Wal-Mart is only taxed on that $3 of profit.

But under the new Republican tax plan, Wal-Mart would be taxed on the full price of imported items, so in this case the full $13 sale price of that t-shirt. As a result of this tax, Wall Street analysts expect retail prices in the U.S. to rise as much as 15 percent.

The plan would also cut taxes on companies that export from the United States. This is intended to encourage companies to locate production here in the United States.

But it wouldn’t reverse the tide of automation that’s rapidly eliminating jobs even from American factories.

The worst thing about it the plan is it’s a hidden upward redistribution.

Its burden will fall mainly on the poor and middle class because they already spend almost all of their incomes, so they’ll feel the greatest pain from higher retail prices.

The benefits will go to companies that export and their shareholders, who will benefit from the tax cuts in the form of higher profits – and higher share prices. Shareholders, who are mostly upper-income people, don’t need this windfall.

Republicans claim that the U.S. dollar would rise in response to higher taxes on imports, effectively wiping out the tax burden. But as a practical matter, no one knows if this will happen.

Bottom line: The tax plan is dressed up as a way to make America more competitive. But underneath it’s just a typical Republican plan that redistributes from the poor and middle class to corporations and the wealthy.

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Robert Reich

ROBERT B. REICH is Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies. He served as Secretary of Labor in the Clinton administration, for which Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century.

His new book, "Saving Capitalism: For the Many, Not the Few," is now in bookstores. His film "Inequality for All" is now available on iTunes and Amazon streaming.