Trump Doubles Down on His Border Tax Promise

James Madison, a man famous for drawing our great republic’s Constitution out of the ashes of the Articles of Confederation over 200 years ago, often opined on the value of those outside America relative to those within. We ought not to bring in from outside, “merely to swell the catalogue of people, without adding to the strength or wealth of the community…[these] are not the people we are in want of.”

It’s a message that has largely fallen on deaf ears during Obama’s control of Washington, where amnesty-for-all pledges and rash decisions to accept refugees blatantly jeopardized the strength and wealth of our communities.

No more. President Trump has not only made it clear that his election pledges of borders and policing will stand, but that he will take steps to prevent illegal economics in addition to illegal aliens. A big border tax, Trump often promised, will allow American companies to compete on fair ground with nations like China that manipulate their currency to gain a leg up.

Tariffs, like immigration control, was a favored policy of our Founding Fathers; the second order signed by Washington established tariffs throughout the country, while protectionist fiscal policies provided the bulk of government revenue for the first 150 years of the nation — an idyllic time where the income tax and the IRS did not exist. Trump’s devotion to a new tariff policy seeks to provide a bulwark against the United States’ embarrassing trade deficits approaching half a trillion dollars.

Or so it seemed. Trump’s border tax emerged during the campaign, but a plan amongst Republican leadership to institute a similar tariff on imports predates his whirlwind up-turn of American politics. But where Trump frames an import tax in no uncertain terms, Republican bigwigs call it a “border-adjusted corporate tax” (a term that may have been concocted to confuse liberals, who hate both borders and corporations). Interestingly, such a tax has broad support from economists who subscribe to different flavors of fiscal policy.

The tax differs from a strict tariff on imports due to the nature of collecting corporate taxation. Corporations are taxed on their profits, not their incomes, which leads armies of lawyers and accountants to haggle away for every penny they can deduct. The result is fantastic for lobbyists who ply pork-barrel senators like Dianne Feinstein with dinners and vacations, but less so for the average American taxpayer; perhaps you’ve heard stories of how Apple pays nearly nothing in taxes.

A border-adjusted corporate tax would take the wind out of some of the worst offenders by eliminating their ability to take deductions on imports and eliminating exports as a source of revenue. This double-faced approach creates the incentive not to import, drawing goods and services domestically, but to export with full steam.

Some businesses have already declared their open support for a border-adjusted corporate tax. Our companies that have a global reach, such as aerospace and weapons manufacturers, are drooling at the thought of not having to pay duties on products they ship from Spain to South Korea.

Better still, analysis shows that this change won’t depress trade: we’ll still import trillions of dollars of goods, but with a stronger dollar, we can buy more with fewer greenbacks. Some optimistic economists (yes, they do exist) even believe that it could provide enough revenue to abolish the corporate tax altogether, and slash payroll taxes to boot.

It’s hard to be certain what effects a border-adjusted corporate tax could have, or even if President Trump will choose to implement it over a standard tariff with a standard percentage as he promised. What’s certain is that export-based industries will benefit in the effort to close the trade deficit, and that import businesses will find themselves in a budget squeeze after earning so much profit from cut-throat international prices.

Furthermore, if the dollar cannot rise proportionately with the new flow of exports, the Federal Reserve might raise interest rates in order to jump-start fiscal growth, leading to inflation. However, the bigger picture is the new incentive for corporations not to juggle the numbers on imports and exports, instead committing to buying domestically and selling abroad.

That would be a victory — and, hope beyond hope, the start of a full overhaul of the American tax system to ensure that the biggest burdens aren’t falling on those who work the hardest each day.

Regards,

Ethan Warrick
Editor
Wealth Authority


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